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Technical Breakout Still In Play; October Called A Penny Higher

October natural gas is set to open a penny higher Tuesday morning at $2.77 as traders watch to see if what some call a technical breakout has any staying power. Overnight oil markets advanced.

At this time of year, natural gas prices have often put in a seasonal bottom, and Monday's 6.5-cent rise was enough to pique the interest of market technicians thinking that what amounted to a three-week high, might be enough to fire up a seasonal move.

"Have the seeds for a seasonal cycle advance been sowed?" said Brian LaRose, a market analyst with United ICAP. "This is the time of year where we are typically looking for an average increase in spot value of 103%. From the recent $2.624 low, a gain of 103% would target $5.326. Before we are even willing to entertain such a march higher this year, bulls first need to clear $2.881. Expect the consolidation to continue if the bulls can not get the job done," he said in closing comments Monday.

Hamilton, NY-based weather trader Bespoke Weather Services said, "Natural gas prices rose approximately 2.4% through the day [Monday] as a wave of buyers broke us through $2.735 resistance. We saw an impressive 11,000-plus October contracts traded in just 15 minutes as we broke through that resistance, and we gave back very little into the end of the day. Overall, more than 132,000 contracts have been traded as of 3:10 p.m. EDT, which is significantly above average volume when compared to the last few weeks. This had all the looks of a breakout..."

Fundamental analysts see a near-term weather/storage dynamic in play that could keep the drive alive. "This market's approximate 7-cent advance thus far this week may not be substantial within historical context, but it is significant in percentage terms of almost 3%," said Jim Ritterbusch of Ritterbusch and Associates in a Tuesday morning note to clients. "Bullish impetus appears driven by warm updates to the short-term temperature views per adjustments during the past weekend. Although CDD accumulation is seeing seasonal downsizing, warmth in most regions appears sufficient to reduce injections to below-normal trends within upcoming weekly EIA releases out to the beginning of October. This week's report could also offer a smaller than usual injection, given the fact that Labor Day developed later than usual."

If this is a breakout, it is going to have to endure a not-so-favorable near-term weather outlook. "[Tuesday's] six-10 day period forecast is cooler, or not as warm as yesterday's forecast, over a good portion of the central and eastern U.S.," said forecaster WSI Corp. in its Tuesday morning report. "The West is warmer. PWCDDs are down 3.3 to 27.1. Forecast confidence is average today as models have wavered a bit with the details of the PNA [Pacific North American] driven pattern. Technical and timing differences emerge as the period progresses.

"The Interior West and central U.S. have a risk to the warmer side, while the Northwest and Southeast have a risk to the cooler side."

In overnight Globex trading October crude oil added 43 cents to $44.43/bbl and October RBOB gasoline gained 2 cents to $1.3208/gal.

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