Front-month natural gas futures on Friday traded below $8 for the first time since early February as the September contract recorded a low of $7.960 before rebounding to close at $8.092, down 4.4 cents from Thursday’s finish and 15.6 cents below the previous week’s close.

Taking Friday’s $7.960 low and tracking back to the July 2 high for the move of $13.694, front-month futures have fallen $5.734 over a little more than a month. With the traditional peak in activity of the Atlantic hurricane season arriving, the million-dollar question is how much lower can values fall.

“The natural gas market is continuing its recent slide, probing under $8 on the September futures [Friday] morning, perhaps just to demonstrate that there is no particular magic to that even number,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “We continue to see potential for the market to grind lower on an ongoing flow of storage injections that look like they’ll be above five-year average levels for at least the next few weeks.”

However, somewhat countering the bearish factors is the potential for increased storm activity finding its way into the Gulf of Mexico. “The upside risk at this point stems more from hurricane threats to supply than it does from peak power demands as the hottest temperatures and the time for record electricity use are now likely behind the market,” Evans added. “Storm threats to production in the Gulf of Mexico could occur at almost any time and on short notice, as was demonstrated by Tropical Storm Edouard, but the market seems to have little fear that something will develop between now and Monday.”

As of Friday afternoon a tropical system had turned into Tropical Storm Fay over the island of Hispaniola. AccuWeather.com senior meteorologist Dan Kottlowski said there are two factors that will influence where the system goes — the forward speed of the system and a building area of high pressure over the southeastern U.S.

“The options are wide open as long as the system remains relatively weak. The storm is moving slowly because of the interaction with the mountains of Puerto Rico and Hispaniola,” he said. “A slow-moving system will track toward Florida or the eastern Gulf of Mexico. If the system picks up speed, it could turn east of Florida and head toward the Carolinas.”

As September futures crawled toward $8 Thursday, traders cautioned against pushing the short side of the market further. “Since our $7.980 target has virtually been achieved, we are suggesting caution in establishing fresh short positions. Although price incursions into the $7.420-8.000 zone are certainly possible, we feel that the large institutions will be using such price declines as an opportunity to offset an existing large net short position,” said Jim Ritterbusch of Ritterbusch and Associates.

In spite of not recommending additional sales, Ritterbusch is still bearish on the market. “Overall, we are still maintaining a bearish trading posture in this market. However, we are suggesting a sideline stance from a trading vantage point because previously mentioned downside price possibilities at the $8 area have been achieved,” he said in a Friday morning note to clients.

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