A strengthening U.S. dollar and a weakening oil complex dealt the natural gas futures market a one-two combination Friday, dropping September to a new low of $8.215 for the downmove, which began after August futures peaked at $13.694 on July 2. The prompt month contract finished at $8.248, down 32.3 cents for the session and off a whopping $1.141 for the week. The October contract also took it on the chin, suffering a loss of 32.9 cents and $1.164 for the day and week, respectively, to finish at $8.330.

September crude oil tumbled $4.82 to $115.20/bbl, and the September U.S. Dollar Index rose 1.30, or a whopping 1.7%, to 76.02, the highest level since late February. “There’s definitely an [inverse] correlation between the dollar and natural gas,” said a New York floor trader.

He added that a number of his fund clients were short the market, and “they’re pretty happy with the market over 30 [cents] lower on the day. Technically the dollar has the potential to rally and be the final straw for this overvalued commodity world.”

The large sell-off prior to a weekend on the brink of the most active portion of the hurricane season is curious. No one seemed too worried about going home short. The trader said it might be a different situation if there were “any hype about anything, but we’ve had a couple of quiet storms in a row. Maybe the third time is the charm.”

AccuWeather.com is following four tropical waves in the Atlantic but reports no organized systems.

In the near term a test of $8 may be in the cards. “Thursday’s price action and overnight downside follow-through have reinforced our expectations for additional losses that could carry to around the $7.98 area by next week,” said Jim Ritterbusch of Ritterbusch and Associates. He admitted that sustainable $7 futures were not likely, but “limited upside possibilities” existed due to little in the way of near-term supportive weather.

On the other hand, Market Profile technical analysis suggests the market found “value” on Friday for September in the $8.27 to $8.42 area, leaving that as a tranche the market may try to test this week, noted Tom Saal of Commercial Brokerage Corp.

Analysts concede plenty of gas supplies in the short run, but longer term the outlook favors the bulls, they say. “Domestic supplies are surprising to the upside, but Canadian exports to the U.S. are down significantly and well below the five-year average of what we receive, and LNG [liquefied natural gas] imports are way down and are now a factor in the market because they are so low,” said a Washington, DC-based broker.

Longer term the broker posited that “if the green movement, which appears to be in play no matter who wins the White House, persists, natural gas is the bridge fuel. As we globalize the trade of gas with LNG and open up markets to countries who say ‘Gee, why wouldn’t we want to save our atmosphere and our environment too? Keep your coal and keep your fuel oil;’ it’s still a question of extraction, and you have to ship it around, but it’s still a bullish scenario.”

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