With preliminary damage assessments from Hurricane Dennis showing minimal impact to Gulf of Mexico production facilities, August natural gas futures traded lower in Sunday night’s overnight Access trading session. However, after opening Monday all of the way down at $7.36, traders realized they may have overreacted a bit.

Following a $7.33 low trade at 10:25 a.m., August natural gas began a corrective rally, settling at $7.495, up 2.3 cents from Friday’s close. With almost no confirmed rig damage in the Gulf yet, August crude continued to shrink away from its $61.90/bbl high notched during Friday’s session to settle at $58.92, down 71 cents on the day.

“I thought we’d get a little rally Monday, and we did,” said Tom Saal of Commercial Brokerage Corp. in Miami. “As for where futures go next, it depends on how much gas Dennis shut in and what the weather is going to be like. I think the reason we are staying above $7 is because it has been hot and that will probably show up sooner or later in the natural gas storage report.”

As for the Access trading session, Saal said he thinks traders beat up August natural gas futures too much. “Instead of calling it Access, we should call it Excess,” he said, noting that traders have been overdoing it on Access lately. “OK, August natural gas should have opened up a little lower Monday because Dennis hit a little weaker and in a different place than was expected, but I think the market really overdid it.”

Some of the steam was taken out of the bulls Sunday as Hurricane Dennis came ashore east of Pensacola, FL and missed most of the Gulf production facilities. However, the 2005 hurricane season is far from over. According to the National Weather Service (NWS), Tropical Depression Five (TD5) is still far out to sea, but headed West nonetheless. As of 5 p.m. AST, the NWS reported that TD5 was located 1,030 miles east of the Windward Islands and moving west-northwestward at 14 mph. Maximum winds were at 35 mph.

“With water warm and little shear, yet another tropical threat may face the coastal United States by this time next week,” said AccuWeather.com. The forecasting firm is also closely monitoring two more tropical waves, the precursor to a tropical depression. One of the two is located in the central Caribbean.

Aware of TD5, Saal said that unless the remaining storms this season are of Ivan proportions, they won’t get the same respect Dennis received. “It now looks like we’ve got another storm coming, but normally the first big hurricane you get is your biggest bang for your buck on the rally,” Saal said. “Unless the subsequent ones are like Hurricane Ivan, the reaction to future storms is often somewhat muted.”

The Commodity Futures Trading Commission in its weekly natural gas Commitments of Traders report Friday showed that large speculators had increased their already extensive holding of short futures positions. Noncommercials held a net short position of 28,893 (futures only) contracts as of July 5, up from a net short position of 25,566 the week before.

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