After dropping $4.493, or 33%, over the last three weeks of trading, August natural gas futures took a little bit of a break Monday as traders assessed the current sub-$10 price level and the market’s likely next move. Starting out the week, the front-month contract gained 7.9 cents to close at $9.163 one day ahead of expiration.

September crude bounced back some from its recent losses on Monday following terrorist attacks on a pipeline in Nigeria. The prompt-month crude contract gained $1.47 on Monday to close at $124.73/bbl.

“The natural gas market is beginning this week in an attempt to sound a more positive note, but it still lacks any clear fundamental support,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “There are some warmer than normal temperatures across much of the continental U.S. [this] week and next, but the 11-to 15-day outlook appears less threatening in that regard.

“We also note that while hurricane risk will generally be growing over the next six to eight weeks, the current weather map lacks any imminent threat to supply from the Gulf of Mexico. Without either a more compelling heat or hurricane story, it seems that all natural gas has to recommend a purchase is really the idea that prices have fallen a long way and could be due for a bounce. That could turn prices higher in a more meaningful way than what we’ve seen so far, but it also may not be sufficient to drive prices higher on its own.”

Entering the week, temperature forecasts are calling for increased cooling demand and traders are citing possible short-covering from a large contingent of sellers.

In its six- to 10-day forecast MDA EarthSat expects warm temperatures to work their way east. “The themes between the American and European [weather models] are generally similar today as both support warmth again sliding eastward though the Midwest and toward the East Coast,” said director Matt Rogers. Under these conditions Rogers anticipates cooling demand to increase for cities in the Mid-Atlantic as well as in the Midwest, “but the hotter conditions are not expected to lock in, as both models do show cooling tendencies in Canada by mid-period.”

The National Weather Service (NWS) is forecasting greater-than-normal cooling requirements for major eastern and Midwest energy markets. The NWS for the week ending Aug. 2 predicts that New England will experience 70 cooling degree days (CDD), or 25 more than normal. New York, New Jersey and Pennsylvania are expected to experience 72 CDD, or 13 more than normal, and the Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin should have 82 CDD, or 25 more than normal.

Last week saw a lot of action by traders reversing earlier long positions to short positions. “I think a lot of traders got eaten up on the long side and are now trying to recoup their losses by pushing it as far to the downside as possible,” said a New York floor trader.

He added that would only make the market more vulnerable to a large upside move. “Most of these guys are technical traders and are playing the market from the short side looking for still lower prices. They are short from just under $10, but took it on the chin from $12.500 down.”

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