Natural gas pain will get worse

Martin Bernetti | AFP | Getty Images

Not all energy futures are rocketing higher along with crude.

After an eight-day consolidation pattern, August natural gas futures have broken down and appear headed for another leg lower.

The fundamental story backs up the downward move. The Energy Information Administration reported a sixth consecutive week of above-average natural gas inventories, which is obviously bearish for the commodity. U.S. output has risen for six years straight, in what seems to be an enduring trend.

The real long-term bearish story, however, is mild winters and summers that don't pick up the slack. Until we can snap that streak, natural gas could trade heavy.

So how am I trading nat gas now?

I like selling August natural gas futures at $3.61 with a downside objective of $3.40. A subsequent trade of $3.67 would return me to neutral.

Jim Iuorio is the managing director of TJM Institutional Services. Follow him on Twitter @JimIuorio.

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