Near-term, the potential for “psychologically driven” weakness in natural gas prices and energy stocks exists until signs of cooler winter temperatures appear sometime in October, said Raymond James analysts in their latest “Stat of the Week.”

“Barring any unusual events, such as hurricanes or abnormal temperatures, we believe the market could be in for growing injection trends through September,” said J. Marshall Adkins and James M. Rollyson. Long-term, however, they “continue to believe…trends support our expectation of $5+/Mcf average natural gas prices for the next few years.”

If the normal seasonal trends occur, the analysts said, “we are due to see sharply rising injections over the coming months, until cooler winter weather begins to show up at some point in October.” Barring the potential for hurricanes impacting Gulf of Mexico production or a heat wave in September, “we could see another wave of 90+ Bcf injections in September. While the market should be aware of the historical rise in injections during September, we aren’t so sure it is prepared to see 90’s injections.”

With a typical market response, Adkins and Rollyson believe that natural gas “could easily fall back into the mid-$4/Mcf range (or potentially lower), which would likely cause energy stock prices to decline back to their recent lows. Accordingly, energy investors should be aware that the potential for near-term weakness lies ahead.”

However, even if there are large September injections, the analysts said storage is “not likely to breach full levels in October.” Even in 12001, when gas injections were “well above the long-term averages,” injections fell from a weekly average of 87 Bcf in September to 45 Bcf in October. Depending on the weather, they do not expect to see “over-full” storage at the end of October.

“It would take monumental injections in both September and October to reach ‘full’ (i.e., 3,200 Bcf) storage levels. In other words, over-full gas storage and a subsequent gas price collapse isn’t likely to happen,” and gas and stock prices will firm into October and through the winter withdrawal season, they said.

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