Coming off Monday's 22.2-cent decline in September natural gas futures, traders on Tuesday tested the upside a second consecutive day with similar results. After reaching a high of $4.825, the front-month contract backed off once again, closing the regular session at $4.639, down 6.2 cents from Monday's finish.

Some market watchers see the inability to punch above $5 as evidence that summer heat doesn't have many weeks remaining and that production levels are still seen as robust. A number of sources noted that a well placed hurricane in the Gulf of Mexico could be the only tool left to free futures to the upside.

"We seem to be seeing a retraction back to the mid-$4 level. I'm not sure whether or not this is a temporary reprieve from the rally to $5, and once we get closer to this week's inventory report we'll see another run higher in anticipation of another small injection like we saw the previous week," said Gene McGillian, an analyst with Tradition Energy. "I do think the market is starting to show that unless we get some sort of wildcard from the tropics showing up, with only three to five weeks of strong cooling needs at most left, the bid for higher prices is losing steam. I think the inability to crest through $5 here demonstrates that pretty well.

"It seems like the fact that production levels are so robust has really capped every rally we've seen this year. Without signs of a nice uptick in industrial demand for gas, the market -- without a hurricane -- I think will have difficulties attacking this summer's earlier high of around $5.200."

That said, McGillian was quick to point out that he does not expect any sort of freefall in prices either. "We still have about six weeks left to actively watch the tropics, so I think that by itself will limit any real sell-off here."

A look at the tropics revealed that after strengthening overnight Monday, Tropical Depression Four turned into Tropical Storm Colin on Tuesday morning in the south-central Atlantic Ocean. While forecasters believe Colin could reach hurricane strength over the next couple of days, the expected path should keep the system from directly impacting U.S. interests, including Gulf of Mexico production infrastructure.

"Historically, tropical storms named in the area where Colin has formed rarely threaten the United States," according to Katie Storbeck, a meteorologist with AccuWeather.com. "Although Colin does not pose an immediate threat to land, residents along the East Coast of the United States should keep an eye on the tropical forecast into the weekend."

Not everyone was fazed by Monday's 22.2-cent price drubbing. "The bullish portrait of this market seen last week has not suddenly disappeared. We always knew that breaking $5 would be a test, and it came on a day when funds decided to return to their old pattern of buying oil and selling gas," said Peter Beutel, president of Connecticut-based Cameron Hanover. In his view the selling took place "at precisely the same time that producers decided to lock in higher production prices.

"But, it would be a mistake, we believe, to turn our backs on the upside in this market. The formation of a tropical depression, quite suddenly, in the mid-Atlantic, is a reminder of what we are likely to see over the next 60 days as we pass through the heart of tropical storm season. We have been assured by the experts that it will be an active season, and we are now entering the time period when that will be more the case than it has been. Continued hot temperatures are also likely to eat into storage levels as they have done these past few weeks."

On the weather front Commodity Weather Group predicts a large area of above-normal temperatures extending from Mississippi to North Dakota and Illinois in its six- to 10-day outlook. "The big temperature themes today include a slower fade of the big Texas heat, a hotter six-to 10-day [forecast] in the Midwest, and a cooler 11-15 day [forecast] in the Pacific Northwest," said Matt Rogers, president.

He added that these three developments were supported by weather model consensus but cautioned that lower confidence was on the 11-15 day forecast where the American models tend to be seasonal to above normal in most of the Midwest and Plains, while the European models tend to lean toward the cooler side. "But large coverage of near-normal anomalies are typically a cause for caution and lower confidence."

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