September natural gas was unchanged Friday as the volatility following Thursday’s inventory report all but vanished, and managers see an oversold but non-threatening market. At the close September was flat at $3.941 and October had risen 0.7 cent to $3.962. September crude oil added 25 cents to $86.88/bbl.

“My view is that the market will move sideways although it presently is oversold,” said a marketing manager with a California utility. “There are hints that production numbers are starting to turn up again, and that’s part of the reason it has sold off the last week or two.”

“Some of the data that’s coming out from Bentek [Energy] and others is showing that output from shale gas is starting to turn up again; however, the jury is still out on that. We are going into the teeth of the hurricane season, and that’s supportive. We are getting a lot less gas out of the Gulf, but with a storm you could take 50 Bcf out of the market through short-covering and shake up the market for a week and a half.

“I don’t think the summer is over, and although there are forecasts of an active hurricane season, we haven’t had a storm since Ike and Gustav.

“What’s the upside? It looks to be no more than about $4.50, and it’s difficult to get motivated to do any [long] hedging. Longer term the production side is elevated, is likely to stay elevated, and maybe move higher. Every time the market does take a decent run and the [price] momentum goes away, traders sell the bananas out of the market. We saw that in early June, early May, and just a couple of weeks ago when it got to $4.50 to $4.60. There don’t seem to be any red flags out there to get someone like me concerned.”

There wasn’t much concern by drillers as oilfield services firm Baker Hughes reported increased rig activity in all categories except the Gulf of Mexico. For the week ended Aug. 5, rigs drilling for natural gas increased by six to 883, but were 100 fewer than a year ago. The total of active U.S. drilling rigs rose by 12 to 1,920, up sharply from 1,605 a year ago, and horizontal wells, those common to shale plays, rose by a stout 19 to 1,099.

The natural gas and other energy markets didn’t have to endure headwinds following the employment report by the Labor Department. The 8:30 a.m. EDT report showed July non-farm payrolls increased by a healthy 117,000, well above the 75,000 expected by analysts. The unemployment rate, at 9.2% for June, decreased to 9.1%. The Dow Jones Industrial Average finished at 11,445 and was able to recover only 61 points of the 513-point shellacking suffered Thursday.

Analysts see a shifting supply situation projecting a decline in the year-over-year storage deficit.

“[M]arket dynamics have shifted during the past month as storage injections have exceeded median street expectations by about an average 5-7 Bcf during the past four EIA [Energy Information Administration] reports,” said Jim Ritterbusch of Ritterbusch and Associates in a morning report to clients. “This has amounted to some 20-25 extra Bcf of supply across the month of July above what would have been extrapolated from CDDs [cooling degree days].

“Stated differently, strong EG [electricity generation] demand appears to have been offset by a reduction in industrial demand as well as a stronger production pace than generally expected earlier this summer. As a result, the supply deficit against last year has closed quicker than we had anticipated with the current year-over-year shortfall approximating only about 185 Bcf.”

Tom Saal, in his work with Market Profile, sees prices poised to work lower. He calculates that the initial balance for the month of August is $4.230 to 3.915 and according to Market Profile methodology, trading targets lie at 50% range extension, $3.752 and 100% range extension, $3.600. Saal sees the 50% extension as achievable in the near term and counsels hedgers to be scale-down buyers at $3.752.

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