Lending new credibility to the idea that last Friday’s $9.91 high might have been a top, September natural gas futures on Wednesday — with influence from a very weak petroleum sector — put in its lowest settle in four days.

After reaching a high of $9.85 in morning trade, September natural gas futures set its sights on exploring lower. The prompt month logged a low trade of $9.38 just minutes before settling at $9.391, down 36.1 cents on the day.

“I think we saw a round of profit-taking in all energy futures on Wednesday and there was definitely some heavy trade-selling in natural gas,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “I have been expecting to see the trade-selling pop up due to the loss of gas demand for electricity from moderating temperatures throughout most of the country.”

In addition to profit-taking, natural gas got caught up in the overall weakness in the petroleum futures complex. The Department of Energy’s petroleum inventory report on Wednesday revealed fairly bullish news, which went unheeded. The report, which covers activity for the week ended Aug. 12 showed that U.S. gasoline inventories dropped by 5 million barrels, which was significantly more than the industry had expected. The inventory report shows gasoline levels are currently at the bottom end of the seasonal average. In addition, crude inventories added 300,000 bbl, which was a smaller build than predicted.

The drops in petroleum futures were astounding. September crude settled $2.83 lower at $63.25/bbl, while September gasoline and heating oil closed lower by 9.26 cents and 8.01 cents at $1.8910/gallon and $1.7839/gallon, respectively.

Despite the sizeable drop in natural gas futures on Wednesday, Kennedy noted that the contract is still just probing the lower end of the recent trading range. “It still looks to be a consolidation, so I have to be careful here,” he said. “Looking at the daily chart, one could say we are seeing a double top at $9.91 and $9.88, but we would first have to close below $9.35 before the double top speculation even applies.

“The fundamental bullishness in the futures market has been cash prices all week, which is kind of interesting because electrical demand for natural gas has dropped about 30% from two weeks ago. If demand is dropping, why is the cash market so strong?” he asked.

“There are only two places natural gas can go this time of year,” Kennedy explained. “If it is not going for electrical generation then it is probably going into storage. So what is bullish this week, might smack us in the back of the head next week in the form of a big storage injection.”

Kennedy also addressed reports over the last few weeks of concern related to the current natural gas storage situation. “There is no production problem and there is no shortage of natural gas, folks,” Kennedy said. “If the storage operators’ game plan is to put 3 Tcf in storage, gosh darn it, they are going to put 3 Tcf in storage and they aren’t going to have any trouble doing it. I think somebody is talking their book out there and hoping everybody else is stupid enough to buy into it.”

Looking at Thursday morning’s natural gas storage report for the week ended Aug. 12, Kennedy said he expects to see a 48 Bcf build. The ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 49.5 Bcf injection.

Citigroup’s Kyle Cooper is looking for a build between 49 and 59 Bcf, noting that inventories will likely fall below last year this week. He added the median projection in a Bloomberg survey of 12 analysts is for an injection of 45 Bcf. “The weather remains very bullish,” Cooper said. “Injections will continue to display bullish tendencies until the weather moderates.”

The injection revealed Thursday morning by the Energy Information Administration will be compared to last year’s 77 Bcf build and the five-year average injection of 61 Bcf.

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