August natural gas futures retreated Monday as traders cited a bevy of sell offers above the market and an underlying sentiment that near-term trading opportunities lay on the short side of the market. The August contract fell 9.1 cents to $3.604 and September dropped 9.3 cents to $3.768. September crude oil rose 33 cents to $68.38/bbl.
“It looks like traders are going to take the market down to $3.19 and see what happens from there,” said a New York floor trader. He added that “everybody and his cousin would likely own natural gas if it fell to $3.00,” but that would give aggressive sellers an opportunity to capitalize on even lower prices should the expected number of sell stops accumulate just below $3. “There are strong scale-up offers from $3.85, and there is just no upside to this market. There is no weather, and no hurricanes.”
Others see the market sliding to the $3.15-19 area as well. “Our models show lower numbers within the broad range the market has been confined to,” said a Texas fund trader. He also noted that his company’s models don’t point to any protracted drop below $3, and added that “there hasn’t been much opportunity to take advantage of anything. We are still looking for the next trading signal.”
There is great debate about whether the negative factors that have driven the market from its $13.94 high of last summer to current levels have been fully taken into account. “I would think if nothing changes between now and the end of October and the market continues to build storage, in a month or two the next surge lower could take prices lower and $3.15 would look conservative [high],” he said.
There was little change in August futures last week as the contract gained all of 2.6 cents, but traders see that as a sign of resiliency given the lack of any fundamental positive factors. “Considering how weak the gas market has been, maybe a flat week is the beginning of some stabilization in the gas market,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm. He noted that weekly gas storage numbers were more or less in line with expectations, although August futures suffered a 24.3-cent drubbing after the Energy Information Administration’s latest report last Thursday. “The gas market is suffering from more than adequate supplies and the lack of any significant weather (hurricanes or above-average temperatures),” he said in a morning note to clients.
DeVooght advises holding on to current positions. End-users and trading accounts are advised to stand aside and producers should hold on to an October $4.50-6.00 collar. In addition, producers should hold a 12-month $5-8 collar beginning with the August contract for 35 cents.
In its six- to 10-day forecast MDA EarthSat sees little to help the bulls outside of a repeat of warmth in Texas and the Southwest. “An upper-level low in the Pacific will bring cooler trends to the West Coast during the period. A ridge will remain dominant over the Southwest and should even strengthen some late, bringing aboves [normal temperatures] to Texas as well as it inches eastward,” the forecaster said. Large energy markets in the Midwest and also the Plains are expected to see “well below” normal temperatures as the troughing conditions continue. “These cooler conditions should spread toward the Northeast during the second half of the period as the trough begins to progress slightly eastward in response to a stronger southwest ridge and weaker Bermuda high.”
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