With Tropical Storm Alex appearing to be on a more westerly Gulf of Mexico (GOM) production-sparing path, July natural gas futures on Monday immediately extracted Friday’s premium as the expiring contract declined 14.4 cents to go off the board at $4.717. August futures declined by 17.5 cents to close at $4.733.

While most computer models heading into the weekend had Alex peeling off west toward Mexico, traders were still concerned that the storm system could take a more northerly route into the central Gulf of Mexico, hindering production, hampering oil recovery efforts and potentially carrying spilled oil onshore. Even on its westerly course, forecasters fear that rough seas and storm surges could push oil further inland.

Citi Futures Perspective analyst Tim Evans attributed Monday’s downswing to follow-through from last week as well as Alex’s more westerly course. However, he warned that the storm would not have to deviate course much to track through the central U.S. GOM where most of the region’s 6.6 Bcf/d of natural gas production originates.

Evans added that many traders never really considered Alex to be much of a threat. “Since natural gas prices were basically on the decline last week even as this storm was working its way across the Caribbean, it really doesn’t seem as though natural gas traders had been assuming a supply disruption on this one in any case,” Evans said. “The longer-term threat of some later storm roaring through the Gulf at Category 3 (or higher) is really the concern in our view.”

According to Heather Buchman, a meteorologist with AccuWeather.com, Alex is expected to strengthen into a hurricane as it tracks northwestward across the western Gulf of Mexico over the next few days. “The storm has a good chance of reaching Category 2 status by Wednesday due to favorably light winds in the upper atmosphere and a path over warm waters,” she said.

While there is still uncertainty regarding Alex’s track, the meteorologist warned that the storm will likely threaten parts of northeastern Mexico and Texas with flooding rain and strong winds prior to and after landfall in the area of Brownsville, TX and Tampico, Mexico Wednesday night or early Thursday morning.

Some traders still see the storm supporting prices. “Traders are always reluctant to be too short when the hurricane season kicks off,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. “On a trading basis, we will continue to hold our producer collars. For speculators, we will hold our long calls. If the spot market hits $5.50, we will book our long calls,” he said Monday morning.

DeVooght is advising trading accounts to hold long October $4.50 calls purchased at 38-45 cents and end-users to stand aside. Producers and those with exposure to lower prices should continue to hold the balance of a 12-month $5.50 put option held against the sale of a 12-month $7.50 call that was initiated in December, he said.

Directional traders seem to be tiring of the long side of the market. The Commodity Futures Trading Commission in its weekly Commitments of Traders Report for June 22 showed a net overall reduction in long natural gas futures and options held by managed money. At IntercontinentalExchange long futures and options contracts (2,500 MMBtu) declined 8,261 to 346,085 and shorts rose 4,095 to 39,610. At the New York Mercantile Exchange longs (10,000 MMBtu) fell by 13,827 to 142,210 and short holdings contracted 4,770 to 182,708 futures and options. When adjusted for contract size total longs at both exchanges fell 15,892 and shorts declined 3,746. For the five trading days ended June 22, July futures fell 43.3 cents to $4.756.

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