With little in the way of fresh fundamental or technical direction, natural gas futures prices chopped sideways Friday as light short-covering and hot weather forecasts were tempered by lower cash market prices. The September contract worked its way higher throughout the first two hours of trading, but hit the skids late in the session as it fell to its settlement price at $2.858, up 1.6 cents for the session. Estimated volume was light, with only 58,581 contracts changing hands.

Despite blistering heat across a good portion of the eastern United States Friday, cash prices fell Friday as buyers cut back their requirements over the weekend. However, that demand will likely ramp right back up this week as above normal temperatures are predicted to continue. “It is difficult to sell this market ahead of the weekend when the forecast is so bullish,” a Houston risk manager said. “Add to that the growing potential for a tropical event in the Atlantic or Caribbean and you have a recipe for a disastrous Monday morning. That’s not the way you want to start the week, covering shorts that were initiated at substantially lower levels just three days prior.”

According to the latest six- to 10-day forecast released Friday by the National Weather Service, above normal temperatures are predicted across most of the country this week. Only central Florida, South Texas and coastal areas of Southern California and Washington and Oregon are expected to see below normal temperatures.

Cash prices fell considerably Friday, but still held a premium to the September futures contract. NGI‘s Henry Hub price was $2.91 Friday, down 16 cents for the day. “That market backwardation is something to watch,” warned Tom Saal of Pioneer Futures in Miami, who is not as bearish as most other market-watchers. “If that [backwardation] remains through [this] week, it means the [futures] market may have found a bottom. You can have the cash price trade above the futures price for a couple days. That is normal in the winter when you are pulling gas out of the ground, but for that type of cash-futures relationship to manifest itself for an extended period of time during the injection period is uncommon. There has been talk out there that people are actually withdrawing gas from the ground.”

Also falling in the not-so-bearish camp is Tim Evans of IFR Pegasus in New York, who believes that prices will fall, but not until after the threat of summer heat and tropical events are behind the market. In the meantime, he looks for a paltry 40 Bcf refill this Thursday to be followed by an even smaller injection next Thursday. Storage additions of that magnitude would fall short of last year’s comparable refills of 75 Bcf and 46 Bcf, and would conspire to further compress the year-on-year surplus currently at 326 Bcf.

In daily technicals, Saal would not rule out a test of support at $2.80 early this week. However, unless non-commercial traders look to push the issue, Saal does not see September breaking beneath support. “They just don’t appear to have the appetite for shorts that are necessary right now for this market to test lower levels.” He may have a point. After accumulating a net short position of 28,215 as of July 23, these “speculative accounts” have pulled back slightly. According to the latest Commitments of Traders report released Friday by the Commodity Futures Trading Commission, non-commercial traders held a net short position of 26,905 as of July 30, down 1,310 positions from the week prior.

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