With the shoulder season now in full swing and storm systems in the tropics remaining largely unorganized, the softness in natural gas futures last week spilled over into Monday’s action as the November contract recorded a low of $3.686 before closing out the regular session at $3.727, down 7 cents from Friday’s finish.

The $3.686 low was the lowest a prompt-month contract has traded since Aug. 27, when a 12-month low was carved out at $3.610.

Citi Futures Perspective analyst Tim Evans noted that the week began once again on a negative note, which he ties to lackluster demand. “The natural gas market is starting off another week on the defensive, with some colder-than-normal current temperatures sparking some heating demand in the Northeast, but the mid-October readings expected to average near normal, and bearish relative to some October 2009 cold,” he said. “The tropics remain fairly quiet, and while there is still risk of a late season hurricane, the market seems willing to assume that any storms will miss the producing areas in the northern Gulf of Mexico, or that there would be time to buy later once a specific storm threat emerges.”

Analysts see no immediate cure for the current price malaise. “Natural gas continues to be the whipping boy for the commodity bears. On a fundamental basis the gas market is unlikely to get out of the woodshed any time soon,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.

According to DeVooght, the negative fundamental outlook is still very much in place. “It has been our thought over the past few weeks that the gas market was ripe for some type of short-covering rally. We still feel that is a good possibility. But this [last] week was rather disappointing for the bulls (or for those of us that have been looking for a short-covering rally). When you see strong alternative products, rising commodities in general and firm equity markets and natural gas cannot even hold its own, you have to be concerned if you are exposed and if the gas market moves lower. It seems like the gas market has to go lower before it’s going to get better,” he said.

“On a trading basis, we are going to continue to hold our short producer collar. We are hoping for some type of fall, short-covering rally to give us an opportunity to add to our short hedges.” DeVooght currently advises traders and end-users to stand aside. For producers he advises holding the remainder of a 12-month collar consisting of a $5.50 put offset with the sale of a $7.50 call that was initiated in December 2009.

In a curious development directional traders at the New York Mercantile Exchange increased their short holdings for the week ended Sept. 28, but at IntercontinentalExchange traders exited short holdings by more than 2:1 compared to long positions. The Commodity Futures Trading Commission in its weekly Commitments of Traders report showed that at IntercontinentalExchange long futures and options (2,500 MMBtu) fell by 12,956 to 318,746 and short contracts dropped a hefty 29,042 to 72,737. At the New York Mercantile Exchange long futures and options (10,000 MMBtu) fell by 6,454 to 133,731 and short holdings rose by 13,055 to 230,156. When adjusted for contract size, longs at both exchanges fell 9,693 and shorts rose 5,794. For the five trading days ended Sept. 28, November futures fell 11.6 cents to $3.951.

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