August natural gas futures continued lower Friday and ventured briefly below $9 for a second consecutive session before closing at $9.084, down 23.9 cents from Thursday and $1.486 lower than the previous week’s finish. Despite the month-long plunge, some traders are noticing some significant buying efforts as people attempt to bargain hunt.

Since the July 3 close at $13.577, the August contract has dropped $4.493, or 33%. Front-month crude, which dropped $2.23 Friday, has also done some significant slimming by subtracting $22.03/bbl, or 15%, from the July 3 August crude futures close of $145.29/bbl to the September contract’s Friday finish of $123.26/bbl.

“I am not so sure why we are seeing this big round of selling. The funds were mostly long crude/short natural going into this whole drop, so obviously they have been loving it,” said a Washington, DC-based broker. “In terms as to who the new people are that are jumping in and selling, a fair amount might be producers who are saying that this is enough to get them to act.

“However, buyers have been active too. Our commercial buyers have been in here firing away, but not enough to stem the tide lower obviously. There are end-users who are locking in these price levels and they are doing it out along the curve. I have been writing more 2012 and 2013 tickets than I have ever done before, so there are buyers stepping in here who are liking the prices they are seeing.”

The broker said he is eyeing $8.600 or $8.650 as the next level of support, which traces back to the low on the perpetual chart back on March 20. “We thought $9.450 might have held as a 61.8% pullback from the top of the move, but it failed,” he said. “We really haven’t seen any sort of bottoming formation even begin to appear.”

Some analysts suggest the end of a very short seasonal price decline and a market preparing for an advance.

“For natural gas late July into early August is the worst time of year to be building a short position. The 20-year average late-[summer] to November rally is a 111% increase in spot contract value,” said Walter Zimmerman of United Energy. He added that it typically dropped 33% during the summer and then staged a 111% rally into the fall. “Seller beware,” he cautioned.

Savvy analysts always have a point at which they are willing to call themselves wrong, but Zimmerman feels the seasonal forces are so strong that they are likely to remain a pivotal price determinant. When queried if a protracted period of price consolidation under $9.170, a seasonal benchmark, would cause him to rethink the seasonal model, Zimmerman’s replied that “the seasonal history of natural gas has been so consistent that it is our advice that you are better off taking a slow walk in fast traffic than building a short position in natural gas into late July and early August. We haven’t gone to all the trouble of identifying the seasonal patterns so we can start guessing against it.”

He added that the natural gas market had unique physical characteristics with “a clear inside and outside.” Physically, natural gas is unlike other energy contracts such as crude oil or gasoline and the supply of natural gas “behaves like a big balloon, ever expanding and contracting. It’s a significant structural difference,” whereas petroleum products are subject to a number of international factors.

Others aren’t so sure. Phil Flynn of Alaron reports that he was stopped out on a long August natural gas position “from approximately $9.900 at approximately $9.700. Sell August natural gas at $10.500 — stop $10.700,” he advised Friday morning.

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