After dropping $3.15 — or 23% — through Thursday from the move’s high back on July 2 of $13.694, August natural gas futures were given a rest on Friday as the contract closed at $10.570, up 3.3 cents on the day but $1.334 lower than the previous week’s close. Trading on Friday was more notable for what was missing on the day, which was an expected round of short-covering ahead of the weekend due to concerns surrounding numerous tropical disturbances and East Coast heat.

August crude continued with its recent show of weakness Friday as the contract shaved 41 cents from Thursday’s close to finish at $128.88/bbl. The close was $16.20/bbl lower than the previous Friday’s close.

“Interestingly, nobody was all that interested in closing out short positions ahead of the weekend,” said a Washington, DC-based broker. “Up 3.3 cents on the close is hardly anything given the recent multiple-dollar move down. Even if we saw a 40- to 50-cent jump I still would have called it minor profit taking. Clearly there were not a lot of people concerned about leaving things short here.”

The broker noted that the drastic drop in natural gas prices has occurred despite the fact that there has not been a lot of demand destruction. “There are a lot of buyers out there. There are a lot of fertilizer businesses out there because the crop prices have also gone up, so farmers are willing to pay the higher price,” he said. “Natural gas demand has been somewhat OK through these higher prices. Natural gas certainly has not had the demand reduction that gasoline has seen, where high prices have shown up in reduced demand. Our next technical level is $10.270 if things remain weak here. If we bounce back up, $11.080 is our first resistance mark.”

He added that current fundamentals would normally be lending some support. “We are getting some real heat on the East Coast and we have these little tropical disturbances developing down in the Atlantic and Caribbean, which would normally result in a little bit of a price floor, but at the moment nobody is buying into either of these scenarios.”

The most immediate threat in the tropics appears to be a wave north of Venezuela. “Despite spinning over warm water with little wind shear overhead, the tropical wave’s close proximity to Venezuela is hindering development,” said Kristina Baker, a meteorologist with AccuWeather.com. “The potential for the wave to become a tropical depression will increase later Friday into the weekend as the wave moves northwestward into the open waters of the Caribbean. Further intensification could then occur, likely leading to the formation of a tropical storm. The third tropical storm in the Atlantic Basin will acquire the name ‘Cristobal.’ The wave is forecast to reach the Yucatan Peninsula later this weekend, then the southwestern Gulf of Mexico early next week.”

Thursday’s report of a plump 104 Bcf natural gas storage injection for the week ended July 11 caught a number of traders by surprise, but analysts suggest that the prior week’s price weakness may have augured just such a robust injection.

“In hindsight, [the previous] week’s unusually bearish price action was likely signaling a bearish figure in this report as relatively mild temperature patterns and lack of a significant tropical storm threat have forced upward revisions in storage projections across the remainder of the injection season,” said Jim Ritterbusch of Ritterbusch and Associates.

Weather forecasters see near-term conditions as encouraging healthy injections. “The pattern across North America sees seasonable demands for cooling energy to continue across much of the U.S. for the next five to six days, with slightly elevated demand across the Rockies and Plains,” said Meteorologist John Dee. Further out into the latter part of the week ending July 26 “it looks like the Rockies and Plains will heat up, while temps to the east of the Mississippi River and along the West Coast run average to even a bit below average,” Dee said Friday morning.

According to Ritterbusch, a less tight supply situation along with collapsing crude oil prices has been the culprit in the natural gas price plunge. In the short term he looks for Thursday’s $10.464 low to provide temporary support, but “additional declines to around the $10.330 area now appear likely.”

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