October natural gas futures on Friday picked up where the expiring September contract left off on Thursday as the new prompt-month contract spiraled lower to close the week’s final regular session at $3.033, down 17.3 cents from Thursday’s finish.

Even as the calendar ticks closer by the day to the winter heating season, some market participants point out that the bulls still have a lot of bearish fundamentals to overcome before any sort of meaningful rally might hold. With already more than 3.2 Tcf — an arbitrary number that was long considered storage’s full point — in underground facilities, the industry still has 10 more weeks left in the traditional storage injection season, which ends Oct. 31. In addition, neither demand nor the economy has shown any tangible signs of rebound.

“October is clearly picking up where September left off,” said Julio Sera, a broker with Hencorp Becstone Futures LC in Miami. “There is an old technical trading paradigm that says the new spot contract tends to gravitate toward the previous support and resistance levels of the expiring contract. I really would not be surprised to see October retesting September’s support area down around $2.700.”

In spite of his prediction, Sera said there are plenty of arguments to the contrary. “We could talk about declining production, the fact that we are nearing the end of the storage injection season, or that prices are going to have to begin to account for the winter heating season soon. Instead of buy May and walk away, buy September and hopefully it will be a month to remember. However, at the end of the day, the fundamentals that we have right now in front of us are bleak.”

Sera noted that the bulls have a long way to go before a real turnaround is seen. “There is not going to be any sort of sustained recovery in prices until we get some of that short-covering from the noncommercials,” he told NGI. “Trying to predict that event is near impossible because no one is quite sure what drives their moves.”

According to Citi Futures Perspective analyst Tim Evans’ analysis of the Commodity Futures Trading Commission’s Commitments of Traders report released Friday, the funds are slowly but surely reducing their long natural gas positions. “Reportable noncommercial traders liquidated 4,355 contracts of previously established long positions last week and bought back 881 lots of previously established shorts for a net sale of 3,474 contracts,” Evans said. “This reduces the category’s cumulative net long position to 53,017 contracts, the smallest since Jan. 13. At least through Tuesday’s [Aug.25] close, these fund managers had not fully given up on the long side of the natural gas market and remained vulnerable to a further price decline. This suggests there could be further stale long liquidation still to go.”

Market bulls who were looking for Thursday’s expiration of the September contract to ease pressure on prices were disappointed. “While some speculation has been proffered that downward pressure on futures will ease with the passing of the September contract, we feel that the large October futures premiums will prove irresistible to short hedgers that may still need to cover some inventory,” said Jim Ritterbusch of Ritterbusch and Associates. He added that he expected new contract lows to develop within the October contract yet. “A test of Thursday’s pre-expiration September low of $2.690 appears out of reach unless the first half of September remains devoid of any significant hurricane threat to the GOM [Gulf of Mexico],” he said.

Economy watchers were somewhat disappointed with the 8:30 a.m. EDT Friday release of personal income figures. The Commerce Department said July personal income rose $3.8 billion, but that came in at less than the 0.1% gain the market was expecting. It was, however, an improvement over June’s minus 1.3% showing.

AccuWeather.com said a tropical wave off the coast of Africa might develop into a tropical storm over the weekend (Aug. 29-30). The forecaster said a wave at 32W about 530 miles southwest of the Cape Verde Islands is being monitored as it moves into an area favorable for development. “Some computer forecast information shows this feature becoming an organized tropical system this weekend,” said meteorologist Paul Walker.

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