Natural gas futures sagged at the open and then again at theclose yesterday, but in between the price action was positive astraders continued to grapple with disequilibrium of supply anddemand in the physical market. The September contract finished at$4.685, up 5.7 cents on the day and just to the north of the centerof its wide, 20-cent range. Estimated volume was healthy withoptions-related futures dealings boosting the number of contractsthat changed hands to 73,860.

The El Paso pipeline outage, hot weather forecasts, and thepotential for a bullish storage figure on Wednesday were a few ofthe factors receiving credit for yesterday’s continued pricestrength. Also of impact were cash prices, which trumped thefutures market with advances of a dime or better at many tradinghubs and points Monday.

However, fundamental factors were not alone yesterday. Severaltraders were quick to point to Friday’s Commitments of TradersReport, which showed fund traders have begun to reaccumulate longpositions. According to the Commodity Futures Trading Commission,non-commercial traders were net long 19,579 positions as of lastTuesday’s close, the largest position they have held since May.

Although they have had a tough time making the right call in thenatural gas pit lately, speculators typically will add to theirpositions in hopes of profiting from the resulting price move. Forexample, shortly after non-commercials reached a peak of 43,601 netlong positions at the beginning of May, the futures market ralliedto $4.50 for the June contract.

While it is difficult to say whether the non-commercials willaccumulate that sort of position to the long side of the marketthis time around, they were buyers yesterday. “Funds were at itagain,” said a broker of the surprise buying yesterday morning.”They appear willing to support this move,” he said.

Several traders contacted by NGI yesterday said the expiringSeptember options added to the market’s volatility. “As funds drovefutures higher, options traders were forced to delta hedge their$4.75 strike price by buying September (futures) contracts tomanage their risk. Then in the waning minutes before the closeyesterday when it became apparent that the $4.75 area wasunobtainable on a closing basis, those same traders liquidatedtheir long positions,” he said.

The September contract tumbled about seven cents between 3 p.m.(EST) and 3:10 p.m. yesterday.

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