After trading within the $5.12-5.18 range for a majority of the day, September natural gas futures used the final half hour of the regular trading session to make another run at the psychological $5 mark before expiration.
However, the September contract was only able to reach a low of $5.03 before rebounding slightly to expire at $5.082, recording a 10.7-cent loss on the day. The attempt at breaking into the $4-5 region was the second in 24 hours, as the prompt month reached a low of $5.097 in Thursday overnight Access trading. While unable to penetrate the $5 mark, futures were able to set a new spot month low for the year, eclipsing the $5.06 low recorded on Feb.24.
October, which will debut as the prompt contract in Access trading Sunday evening, closed down 14.5 cents at $5.189.
“There was some short-covering early and then the [futures] market finally drifted down to about where cash was trading,” said Tom Saal of Miami-based Commercial Brokerage Corp. “The low of the year is $5.06. So far, we haven’t [substantially] taken it out yet. Last time we were at this level, it was probably a pretty good place to buy it.”
Tim Evans of IFR Energy Services agreed that the $5.06 spot low from Feb. 24 is the next key decision point. “Below that mark, we see prices taking a further step down, with the cluster of lows in the $4.39-4.60 range from September-November 2004 as the possible objective. On the upside, the failed support at $5.39-5.43 looks like the pivotal resistance for this market, with a rebound past that point having a chance to run back through the $5.545 high from last Wednesday to review the $5.735-5.75 highs from two weeks ago.” He added that long-term resistance at $6.00-6.08 is a possible limit to a short-covering spike from current levels.
Evans pointed out that the natural gas market already houses its share of speculative short positions, so he doesn’t expect to see any dramatic breaks to the downside the way it would from long liquidation. “Instead, we foresee a further steady grind to the downside, reflecting the further accumulation of storage gas at a rate in excess of the five-year average,” he said. “The market may also slip lower [this] week due to the upcoming Labor Day holiday, which will cut into industrial demand.”
Hurricane Frances strengthened into a Category Three storm Friday with maximum sustained winds near 115 mph, according to the National Hurricane Center. Frances was still too far out in the Atlantic to have any implications for gas prices. As of 5 p.m. AST it was about 800 miles east of the Leeward Islands and moving toward the northwest at nearly 12 mph, the NHC said.
While popular opinion is that Frances does not appear to pose a Gulf of Mexico threat, Weather 2000 was quick to point out that Hurricane Andrew demonstrated how a storm in Frances’ vicinity, eventually reaching above 25°N latitude, could still be a major Gulf threat. “With Frances currently well below 15°N, nothing should be ruled out for many more days yet,” Weather 2000 said late Friday afternoon. “Coincidentally, this week is the 12-year anniversary of Andrew’s devastating strikes on Florida and Louisiana.”
The New York-based forecasting firm said that although a more northward path may geographically give the impression that an approach toward the Southeast and/or Gulf would be very unlikely, Frances’ potential avoidance of the Caribbean may work to her advantage. “She potentially gets to avoid the often destructive topography of Puerto Rico, Hispañola and Cuba. Andrew was still a major hurricane after it traversed the Florida peninsula, so hurricanes would ‘prefer’ the northern route over the southerly route if given the choice for survival.”
Evans said Hurricane Frances does bear watching. “It still seems unlikely that it will sneak into the Gulf of Mexico without careening off Cuba and Florida to take some of its force away,” he said, noting that the storm still should not be ignored. “If Hurricane Fances fizzles, we see the [futures] downtrend continuing.”
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