NYMEX natural gas futures relapse amid profit-taking following short-lived rally

NYMEX August natural gas futures shed 26.3 cents to settle at $6.034/MMBtu on July 8 amid a barrage of profit-taking. The loss comes on the back of the previous day’s 14% surge in NYMEX front-month futures that occurred in a single trading session this week following the release of a bullish weekly gas storage report.

Earlier in the day, NYMEX gas futures prices traded as high as $6.305/MMBtu before sellers poured into the market to take profits as prices had become near-term technically overbought. While the market backed off some of July 7’s gains on July 8 gas market bulls could still make a case to send NYMEX gas futures up to the next upside objective of $6.80/MMBtu to $7.00/MMBtu. But prices likely won’t remain elevated for long as the bearish thesis that sent prices catering from the $9.60s/MMBtu just a month ago to the $5.30s/MMBtu just this week is still in place, and not much has changed.

Storage report

Gas market participants will closely monitor the weekly storage reports to confirm if there was a legitimate tightening of the underlying supply/demand imbalance or if the most recent 60 Bcf gas storage build was simply an anomaly or has some actual bullish legitimacy. Gas market bears suggest that the smaller than projected storage data may have been an outlier due to short-term production maintenance, reduced wind power generation and elevated LNG export volumes. Sellers were also back in play, thanks to the major weather forecast model outlooks, which suggest the scorching heat in the Western US and Texas could begin moderating.

While current hot temperatures and the recently bullish storage data are the primary price-setting mechanisms that bulls are hanging their hats on, Mother Nature could have more bearish weather-related surprises in store.

Tropical action

The tropical forecast models, and more pointedly, the European tropical model, have suddenly pointed to South Texas to mid-Louisiana coastlines as being a hot spot for tropical action in the weeks ahead. Should an active hurricane season take aim at the LNG export facilities along the Gulf coast and suspend operations for any period of time, it could inflict further downside pressure on NYMEX gas futures to potentially the $5.00/MMBtu area or lower. In addition, the preliminary fall and early winter forecasts are also coming in with a very bearish seasonal outlook. If long-term projections by the European weather model prove to be accurate in predicting a warm October, November and December in the US, then gas storage concerns will be further alleviated.

Lastly, another significant action occurred on NYMEX and InterContinental Exchange July 8, which could hint at a further eroding gas futures market. Tens of thousands of put options traded on each of these exchanges with various strike prices, with the month of October as the expiration date for most of the trades. Some of the strike prices that traded were as low as $2.50/MMBtu. Buyers of puts are hedging against risk that prices will decline. The large volume of puts traded suggests some large players (a fund or funds) are betting prices will decline.


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