Natural gas futures finished the week on a weak note Friday despite another record run higher in neighboring crude futures. August natural gas closed Friday’s regular session at $11.904, down 39.6 cents from Thursday and $1.673 lower than the previous week’s finish.

Even more surprising is that the weakness came on a day that August crude futures registered a new all-time record high of $147.27/bbl before closing Friday’s regular session at $145.08/bbl, up $3.43 from Thursday.

“I think the market is giving us a lesson on why crude oil prices are not a guide to natural gas trading. We appear to be getting a little bit of a real-time tutorial,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “Strong crude and weak natural gas makes a strong bearish statement for the natural gas market. It also shows just how overvalued we were in the $13.000 to $13.500 trading area because futures are clearly having some trouble getting its feet back under it, despite a supportive petroleum environment.”

Commenting on the rapid decline in natural gas futures, Evans said there might be some people “getting blown out” on the Btu spread trade idea. “The cash market has also weakened with the moderation in temperatures. There is not a lot of heat in the forecast and there is no storm activity currently threatening gas production from the Gulf of Mexico, so at least there has been a break in the bullish conditions here that is allowing prices to test the downside. I think we will probably find bargain-hunting buying somewhere in the $10-11 range. I don’t think we will target year-ago prices down in the $5 to $7 area, and I don’t think $10 to $11 natural gas seems like a hardship price for producers. We might just be seeing a downward correction in the grander scheme of things.”

Evans said the market’s reaction to hurricane season is currently going according to plan — but the normal plan might be due for a makeover. “This is a normal seasonal development. In May and June we price in the hurricane season and in July we tend to see prices moderate when no storms show up in the Gulf,” he said. “In reality, however, we know the prime hurricane season is from mid-August to mid-October. The other thing you have to look at is that the impact of a hurricane season on the natural gas market has changed. What has been underreported in my opinion is that the energy infrastructure in the Gulf has been upgraded and storm-hardened as a result of past hurricanes. In addition, we are less dependent on production from the Gulf as a share of U.S. supply than we were in the past. In 2001, 22.6% or 13.77 Bcf/d of U.S. supply, came from the Gulf. According to a recent short-term energy outlook from the Energy Information Administration, 7.49 Bcf/d of gas is expected to come from the Gulf this year, which is only 11.6% of projected U.S. supply. We get excited about hurricane season because we are in the habit of doing so, but when you look at the numbers, the risk is much smaller than in the recent past.”

Bullish weather factors may be hard to find in the near term. Hurricane Bertha is well out to sea in the Atlantic and real summer heat has not arrived. “The next week to 10 days still look to keep any pronounced and sustained heat out of the Midwest and eastern U.S., with temps to run below average for much of that time frame,” said meteorologist John Dee. He added that during the second half of this week, “temps in the Midwest and eastern U.S. look to warm to average levels, which will put some meaningful demands for cooling in place across these areas, but the demand does not look to exceed that which is average for this time of the year.”

Near-term weather conditions notwithstanding, a power trader may have hit the nail on the head when he saw power and natural gas prices surge Thursday. “The testimony on the Hill was the driving reason behind the advance in crude [and by extension natural gas]. From what we heard the government is not too optimistic about Fannie Mae and Freddie Mac and what that did was kill the dollar and a lot of people started putting money into commodities. Crude oil ran $5 in a matter of minutes,” an Ohio Valley power trader said following Thursday’s action.

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