Natural gas futures slipped lower for the third straight session Monday as the bullish triumvirate — hurricanes, inflation and short-covering — was no match for the continued and undeniable reality of a bearish supply picture. The September contract closed at $3.641, down 3.3 cents for the session and well off the $4.045 high notched just a week ago.

Traders agreed that Monday’s softness is spillover from the negative end to last week. While futures rallied 37.8 cents on Aug. 3, the prompt-month contract slid for the rest of the week, finishing on Friday only 2.1 cents higher from the previous week’s close (see Daily GPI, Aug. 10). “We put in an impressive move last Monday to break above $4, but there was no follow-through,” noted Tom Saal, a broker with Hencorp Becstone Futures LC in Miami. “Unless we get some weather in the form of hurricane or sustained heat, we are probably now headed lower to test the other end of the range at $3.25-3.50.”

As of press time Monday the National Hurricane Center (NHC) was tracking a broad area of low pressure well out in the Atlantic. The NHC said it was favorable for the storm to develop into a tropical depression but only a 30-50% chance that it would strengthen into a tropical cyclone by Wednesday.

“Everyone close to natural gas is aware of the plentiful supply situation. What they are waiting for is the news of a hurricane,” Saal said. However, he added that the question is not so much the activity in the Caribbean, but rather the focus is on politics inside the beltway, and more specifically, the impact on natural gas prices from reining in speculation (see Daily GPI, Aug. 6a; Aug. 6b). “The government has to be careful here with what they do in the energy futures markets because there is a delicate balance,” he added.

Should Congress or the Commodity Futures Trading Commission move to reduce the impact of speculators in natural gas by limiting their holdings, the short-term impact would actually be bullish for prices as these noncommercial entities — who are currently net short 161,220 positions — would be forced to cover some of those positions, he explained.

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