July natural gas futures slumped Friday as forecasts called for moderate temperatures to envelop eastern and Midwest energy markets. A weaker petroleum complex also tugged prices lower. At the end of the day July natural gas closed at $12.625, down 17.3 cents from Thursday and 6.8 cents lower than the previous week’s finish.

The August natural gas futures contract dropped 16.7 cents to $12.728. July crude oil lost $1.88 to $134.86/bbl.

Weather forecasters see little in the way of cooling demand in the six- to 10-day period. “The outlook for next week sees very comfortable temps to build into all of the north central U.S., the Midwest and the Northeast U.S.,” said meteorologist John Dee. With temperatures in the 60s and 70s “little in the way of cooling demand will be seen there.”

In other areas of the country “cooling energy will run high in the Southwest and south-central U.S. in the coming days. Temps in the rest of the West will run average to above, but not high enough to create significant demands for cooling.”

The lofty level of natural gas prices has underscored a perceived sensitivity to supply issues. Traders see a couple of scenarios unfolding. “Investors may be moving the market past the point where it fundamentally should be. Prices may be fed by trader exuberance and uneducated players riding what they see as an unending train. Eventually producers say ‘that’s crazy, I’m the one with the gas in the ground and there’s plenty here and they crush the market,'” suggested a Washington, DC, analyst.

“On the other hand the information is slow to come out, but it’s leaking out that supply is not meeting demand at this level of price, and in fact it’s not someone hoarding, it’s just not there. I tend to lean on ‘it’s not there’ side of the argument.”

He drew a parallel with Microsoft stock in the 1980s. “Was someone smart to buy Microsoft when it had gone up 50% in 1981 when it went from $6 to $9? Some said that was crazy, but others realized people are going to need this product, and there will be huge demand for this and they will be the sole supplier.

“I am betting on the lack of supply argument winning the day and it’s not just crazy speculators,” he said.

Others are also leaning toward “it’s not there.”

“We are viewing Thursday’s new highs as but an additional bullish portent suggestive of a strong pricing environment through the summer period,” said Jim Ritterbusch of Ritterbusch and Associates. Crude price weakness may not matter. “Even allowing for some pullback in the oil toward last Friday’s lows, we still look for an upward track in this market to be maintained on the support of a significant and expanding supply shortfall against levels of the past couple of years. As a result, we are viewing a $13 handle as achievable next week with any assistance from the oil or a shift in the temperature forecasts,” he said in a Friday morning note to clients.

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