September futures limped to a weak expiration Monday as traders factored in natural gas’ strong seasonality and tendency to reach a low at this time of the year. At the close September had fallen 7.4 cents to $3.857 and October skidded 8.2 cents to $3.830. October crude oil added $1.90 to $87.27/bbl.

In spite of the day’s decline longer-term traders favor a seasonal rally. “Will natgas have the usual September-to-November pre-season rally this year? There are certainly enough shorts onboard to power such a rally,” said Walter Zimmermann of United-ICAP. He considers two potential candidates for seasonal support “to be the up trend line from the $2.409 low and the $3.200 level.”

Zimmermann pointed out that “the twenty year average preseason rally in natgas is a 112% gain in spot contract value from August into late November. [Presently] the Dec. contract has only an 8% premium to the September contract.”

Fund and managed account traders gave a modest nod to decreasing long exposure to the market. In its weekly Commitments of Traders Report the Commodity Futures Trading Commission for the five trading days ended Aug. 23 reported that at the IntercontinentalExchange managed money added shorts and reduced the number of long contracts. Long futures and options (2,500 MMBtu per contract) fell 26,212 to 338,021 and short futures and options rose by 22,251 to 183,500. At the New York Mercantile Exchange long futures and options (10,000 MMBtu per contract) rose by 1,698 to 145,229 and short holdings fell 2,760 to 257,902. When adjusted for contract size long positions at both exchanges fell 4,855 and short contracts rose by 2,802. For the five trading days ended Aug. 23 September futures rose 6.1 cents to $3.993.

Top analysts note the market’s lack of volatility but are keeping a close eye on any tendency for the market to further weaken going into September. “The gas market traded in one of the tightest weekly and monthly ranges that we have seen in quite some time. The weekly gas storage injection came in exactly as expected, which failed to be a market mover. The fundamental picture remains the same: more than adequate supplies and mediocre demand,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.

“On a trading basis, we still feel the highest probability is that we continue to trade the high $3 to high $4 range. But we are going to be closely monitoring our positions during the month of September. Oftentimes September can be a weak month for gas prices. [W]e continue to use rallies into the mid to high $4 level as a selling opportunity, primarily utilizing collars and selling call premium. If we break back under $4.15, we will book profits on the short calls and sell put premium. Not exciting, but the best way (in our opinion) to trade this market until we get a break of the range.

“We will continue to hold our current collars and will look to sell calls and cover our short puts if we trade back above $4.60-4.70 or sell puts if we break below $4.15. If we break below $3.85, we will roll our short $4.00 puts to $3.85.”

In its morning six- to 10-day forecast, Commodity Weather Group predicts above-normal temperatures confined to the western U.S. with the exception of California. “While we continue to track a late-season spike in the Midwest this week with 80s-90s (maybe hotter in St. Louis), we also see cooler changes for the East Coast this week and for Texas this holiday weekend,” said Matt Rogers, president of the firm. “A stalled offshore high-pressure [area] will prevent the East Coast cities from warming as much this week, while a combination of a cold front and a potential weak western Gulf system is favored to offer Texas a big break from persistent summer dryness and heat. Heat could rebuild in Texas again in the 11-15 day. Otherwise, interior West heat and warmth stretching across lower Canada seem to be the main focus areas in week two.”

Hurricane Irene scoured the East Coast over the weekend, but the Atlantic Basin continues to be active. The National Hurricane Center (NHC) at 5 p.m. EDT reported that Tropical Storm Jose was down to remnants south of Nova Scotia. About 405 miles south-southwest of the Cape Verde Islands Tropical Depression 12 is moving to the west at 14 mph and is packing winds of 35 mph. NHC said it could become a tropical storm Monday evening. Rogers said “Newly named Tropical Depression 12 is favored to become a hurricane, but should stay in the Atlantic.”

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