Not only did natural gas futures traders evacuate the New York Mercantile Exchange (Nymex) for a planned fire drill Tuesday morning, they also evacuated from $8+ September gas futures prices during the day. Looking past the sizzling heat wave and the development of the third tropical storm of the season, traders — in a corrective action following Monday’s $1+ gain — pushed September natural gas significantly lower Tuesday to close at $7.574, down 63.7 cents on the day.

The trading of energy and metals futures on Nymex between 11 a.m. and 11:30 a.m. EDT was suspended Tuesday for a planned fire drill, but longs had been looking for the exits even earlier. Just prior to the drill, the prompt month was trading at $8.030 — 18.1 cents lower than Monday’s close. September natural gas on Monday vaulted $1.027 higher to close at $8.211 on news that the recent scorching heat wave in the West would bake the East Coast this week.

“I think we saw the market correcting itself following Monday’s run-up,” said Tim Evans, an analyst with Citigroup in New York. “I really only look at it as ringing the cash register on short-term trades. We really don’t have anything in the way of bearish intermediate-term fundamentals.

“While it’s not always going to be 150 degrees in the shade, the bears just don’t have much going for them right now,” the analyst told NGI. “We could see a little more downside here as a result of the upcoming cooling trend, but you have to remember the cool temperatures that we are looking at are not really cool, they are just less hot. It is more of a break before the heat builds back in again. August is expected to be warmer than normal.”

In addition to the oppressive heat around the country and especially in the East, traders are also monitoring the progress of Tropical Storm Chris, which is heading towards the Leeward Islands with maximum sustained winds near 40 mph. The National Hurricane Center (NHC) in Miami said “some strengthening is forecast during the next 24 hours.” If the path projected by the NHC is correct, Chris would hit the Bahamas before making landfall in south Florida. The NHC added that “Chris is expected to move over or near the northernmost Leeward Islands later [Tuesday night] or early Wednesday morning.” AccuWeather meteorologist Joe Bastardi said the NHC’s “ideas on Chris look good” to him.

Evans said that while the storm has only an outside chance of getting into the Gulf of Mexico with a full head of steam, it does serve as a reminder that the heart of tropical disturbance season is here.

“It gives us something to watch for the next week or so,” he said. “Meteorologists have said Chris is facing an ‘obstacle course of islands’ in its path. However, it could still thread its way through those islands and still have something left when it gets to the Gulf. You can’t really count anything out. I still think Chris is more of a symbolic threat as opposed to a real threat at this point. It is a reminder of the storms that are likely to develop through August and September.”

Citing an overnight Monday Access high for the September contract of $8.690, enerjay LLC broker Jay Levine said “volatility is the name of the game” right now in natural gas futures. “The lazy days of summer have given way to a torrent of buying lately — helped immeasurably by last week’s surprise withdrawal — awakening a sleep giant which has once again caught not only the attention of the general energy trading and hedging public but caught fire as well.”

Levine noted that with the September contract trading lower off that $8.69 high during Tuesday’s session, the question is where support will lie. After action on Tuesday took futures below his first support at $7.75, Levine said he sees additional support down in the “$7-teens” and maybe even closer to $7.

“I’d look for resistance, now, back on either side of $8.10, followed by new highs and something in the $8.75+ range — closer to $9 even,” Levine said. “A lot has happened of late — mostly in the perception column — so the field not only remains wide open but wild (and I’d keep my numbers commensurate with that).”

For the moment the supply bears are out of luck. “While bearishly inclined traders will continue to cite a large supply surplus, we would reiterate that this static factor, that has been well discounted, [and] can be easily overshadowed by dynamic demand considerations (tropical storm activity) over the short term period,” said Jim Ritterbusch of Ritterbusch and Associates. He suggested that as much as a 40% price spike might result even with the large supply overhang.

He said the effect of Tropical Storm Chris could be longer lasting and “could provide some additional supportive fodder going forward.” He noted prior to Tuesday’s action that while some commercial short-covering may have spurred some of the strength seen earlier last week, the upside acceleration of the past couple of sessions looks like speculative buying interest.

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