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Natural Gas: The Big Sell Off

This week, August Natural Gas futures posted its biggest one day drop since mid-February. The sell-off basically erased all of 2014 gains. Bearish speculators sold heavily on the notion that the uneven U.S. heat pattern this summer will weigh on demand for the power-plant fuel.

Although the weather has a short-term fundamental influence on the market, the recent price action clearly suggests that natural gas is in the hands of some strong short-sellers. This is because the market is taking a hit from both the demand and supply side of the equation.

The short-term demand outlook looks bearish for the rest of the month. In the East, seasonally normal temperatures are expected to return from July 12 through July 21. The Midwest is expected to experience normal to cooler temperatures during the same time period. With weather forecasters confident that these areas are not expected to see any sustained heat across the major gas-consuming regions of the U.S., prices are expected to continue to feel selling pressure.

On the supply side, a record string of storage injections has alleviated the fear that the U.S. won’t have enough gas for next winter’s heating season. Gas supplies have expanded by more than 100 billion cubic feet for eight consecutive weeks. This new record according to government statistics pushed U.S. inventories up to 1.929 trillion cubic feet in the week-ended June 27. This is only 29 percent below the five-year average for the period,…

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