What Heat Wave? Natural Gas Futures Drop 56.4 Cents
In spite of the sizzling heat wave that has descended upon the U.S. this week, natural gas futures on Monday departed from the last week's upswing to explore lower price levels once again. August natural gas plummeted below the psychological $6 support level in Monday's regular session to settle at $5.783, down a whopping 56.4 cents from Friday.
After gapping lower in the Sunday overnight Access trading session to open Monday at $6.180, the prompt month set its sights even lower. After putting in a $5.730 trade late in the session, August natural gas inched higher to settle.
Crude futures also were singing a different tune Monday, taking a break from their mercurial rise last week that saw a new all-time record high of $77.95/bbl. August crude on Monday sank $1.73 from Friday's settle to close at $75.30/bbl.
"Natural gas futures dropped on Monday for the same reasons it always drops. We have too much supply, not enough demand and not enough things to be concerned about..., i.e., weather. The run-up last week was due to some heat potential and storm potential," said Jay Levine, a broker with Portland, ME-based enerjay LLC. "If you can't stand the heat, get out of the kitchen.
"If [Monday's] action in energy -- specifically natural gas -- is any indication, there's proof that (even) a widespread summer heat wave isn't enough to elicit much more than a minor pop...and that nerves and concerns prevalent in petroleum are virtually nonexistent in natural gas."
Regional transmission organizations around the country were urging electricity conservation Monday as the excessive heat in a number of regions was expected to translate into record power demand. However, that heat couldn't support futures Monday.
Levine said that given the current storage level and the fact that it is already July 17, it will likely take more than just summer heat to prompt a better reaction and more of a rally than the natural gas market already has seen. "There's still time (for problems: namely hurricanes, to arise), and there's still the 'problem' with petroleum to contend with and the ever-escalating hostilities in the world. Although...there is no shortage of [crude] supply at the present time, it does make for an explosive situation, and at the rate this is going, natural gas becomes a potential bargain in the making."
Levine added that August natural gas is rapidly approaching his next area of support after breaking easily through the psychologically-important $6 area on Monday. "I'd be looking at either side of $5.65 [Monday night/Tuesday] followed by another move back to the sub-$5.50 [area] and perhaps closer to $5.40 with $5.25/$5.15 next," he said. "Initial resistance, [Monday night, Tuesday], is going to be starting from $5.90 up to $6.00...(call it $5.95 then) followed by either side of $6.30 followed by $6.75."
Prior to Monday's sell-off, top natural gas brokers had been advising clients to watch the petroleum market for any sign of weakness as a sign to sell natural gas futures. "If it wasn't for a screaming energy complex, natural gas would most likely have put in another low last week," said Mike DeVooght, president DEVO Capital. He said to pay close attention to the petroleum market and "if crude is showing any signs of weakness, we would sell two to three summer months (natural gas) to add to our short August."
He added that natural gas is not getting any fundamental help except for the fact it is cheap versus the (petroleum) complex, and "that seems to be also working against the gas market at this time because technical traders are still willing to buy crude oil and sell gas because that is what their technical signals are telling them to do." He suggests that fundamental physical traders are reluctant to go near the long side of the market because "there is no where to store the gas now, and if we don't get some weather or tropical storm activity soon, the storage situation is only going to get worse," he contended.
Near-term weather is certainly supportive as warm temperatures combined with high humidity are forecast to envelope major energy markets, but later in the week temperatures are forecast to moderate. The Weather Channel predicted that New York City Monday would see a high of 97 degrees with 55% humidity, but temperatures are expected to drop to 85 by Friday. The normal high in New York City at this time of year is 83. In Chicago, Monday's high was expected to reach 92 with 50% humidity, but by Friday the high is forecast to reach only 76. The average high in the Windy City this time of year is 85, the forecaster said.
Mideast tensions continue to mount. Over the weekend Hezbollah missiles hit Haifa, killing eight, and hours later, Israeli warplanes retaliated with an attack on Beirut suburbs. Eric Bolling, a trader at the New York Mercantile Exchange said that $90-100/bbl oil is not out of reach if Iran gets directly involved in the current conflict. Members of the G8 economic summit meeting in St. Petersburg, Russia called for restraint from both sides.
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