After plummeting to trade at $5.32 just prior to noon (EDT), September natural gas futures failed to find any traction and failed to bounce off the floor for the remainder of the trading session. The prompt month reached a low of $5.305 in afternoon trading before settling at $5.31, down 24.2 cents from Friday’s close.
Many traders polled by NGI had suspected that last week’s low of $5.33 would be a launching pad for a move upward. Monday’s activity would seem to prove this theory false.
“I think the market is in more of a down move than anything else,” a Washington, DC-based broker said. “I think you had some short-covering at the end of last week, especially with crude going nuts. I believe natural gas looks weaker overall, although it bounced a little bit last week,” she said.
Pointing to weather as a major reason for natural’s downturn, the broker said, “while the big B’s [below normal temperatures] are off the map, we are getting so late in the season that the average temperature is starting to fall. If we were to get some [warm] weather now it would probably be too little, too late. It would be steep discounts in the front [compared to the back], which is a bearish sign. I think the September contract appears as if it could go off of the board a bit weaker.”
Alluding to stories of people in the midsection of the country pulling out sweaters, the broker said downright cold temperatures squashed a lot of natural gas demand.
If the prompt month can make it down below $5.30, then she believes the contract could go even lower heading towards expiration. “This was a cool August. The National Weather Service is finally giving us some above normal temperatures, but I don’t think they are dramatic. Crude is still your wild card, although those markets have seemed to de-couple somewhat.”
Other market-watchers found it interesting that futures dropped sizably despite the fact that Duke’s Moss Bluff, TX storage facility continued to burn Monday.
“The market has apparently been willing to write off at least some portion of the inventory there and still conclude that the overall storage situation is adequate, if not downright bearish,” said Tim Evans of IFR Energy Services. “In fact, even for the same week, the cooling degree day accumulations came in lower than forecast, prompting us to make an upward revision to our expectations for Thursday.”
Taking into account the assumption that Duke lost 8 Bcf at Moss Bluff, Evans said he is calling for a 65-75 Bcf build for the week ended August 20. “This would still rank as bearish relative to the 55 Bcf five-year average for this time of year,” he said, noting that “the temperature outlook going forward is mixed and we still see no imminent storm threat to producing areas of the Gulf of Mexico, so we can’t yet be confident of even a one-week interlude within the overall bearish storage trend.”
Talking October futures, Evans said it would still take a break below $5.43 to confirm the resumption of a downtrend as September futures challenge the $5.29 spot low from March 25. “Past that point, we see September seeking out the $5.06 spot floor from February 24, with October close on its heels. We see the October as having a longer-term chance of reviewing the $4.39-4.60 spot lows from September-November 2003.”
October natural gas futures closed at $5.466 on Monday, down 22.7 cents from Friday’s close.
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