Natural gas futures pushed higher for a second straight day as the October contract tested $4 resistance on Wednesday before closing at $3.966, up 4.7 cents from Tuesday's finish.

After reaching an early morning high of $4.014, the prompt-month contract put in a $3.908 low before zig-zagging within that 10-cent range for the rest of the day. The hot-button topic on the day was whether the previous week's bearish 103 Bcf storage build was a fluke, or if injections would continue to trim the year-over-year storage deficit and expand on the year-over-five-year average surplus.

"Everyone is wondering whether this market is going to start to give us signals on which direction it intends to go, or whether it just plans to chop around like it has done over the last few weeks," said Gene McGillian, an analyst with Tradition Energy. "It is pretty apparent that a lot of the transition to shoulder season seems to have been priced in pretty nicely. Now until we get a little further through the hurricane season, there is a reluctance to drive futures below $3.700. On the upside, given the overly short position the market finds itself in, the chances of a push back through $4.150 is a possibility; it is just a question of what the trigger will be."

McGillian told NGI he doesn't think the market would have climbed back up to $4 without the recent chatter of a storm getting into the Gulf of Mexico. "Without an all-clear sign on the storm front, the market seems to want to hang around that $4 level."

On the storage front, McGillian said industry expectations have become smaller as the week goes on. "At the beginning of the week, we heard estimates in the 80s Bcf, but as the week evolved it has been pared down to the sub-75 Bcf area. While it won't be another 103 Bcf build, anything above 70 Bcf would represent the industry's second above-average injection. I think the market is basically free to float between $3.700 and $4.150 unless we get a really big surprise. As the calendar flips to October, the hurricane season premium will have to be priced out and then it will be a temperature-driven market concerned with any early signs of cold, or a late lingering warm front."

Ahead of Thursday morning's 10:30 a.m. EDT storage report for the week ending Sept. 17, industry expectation appears to range from the high 60s Bcf to nearly 90 Bcf. Bentek Energy's flow model projects a 69 Bcf injection, which would bring inventory levels to 3,335 Bcf. The research firm expects the East Region to inject 51 Bcf while the Producing and West regions chip in 15 Bcf and 3 Bcf, respectively.

"A 69 Bcf injection would bring U.S. storage inventory levels to 3,336 Bcf, 191 Bcf higher than the five-year average but 179 Bcf below the five-year high set last year," Bentek said in its weekly storage note. "Expect strong injections to continue through the end of the season, particularly in the East, as demand is projected to come off and inventories are running below last year."

The build revealed Thursday will be compared to last year's date-adjusted 67 Bcf build for the week and the five-year average build of 70 Bcf.

Monday's price plunge notwithstanding, top traders see the market potentially forming a bottom as it has been able to withstand last week's plump 103 Bcf injection. "The fact that the market has been able to rally in the face of negative headline news is telling us that the negative supply-demand picture has pretty much been discounted," said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.

"On a trade basis, as a trader we are always watching for markets that are ignoring negative news and moving in the opposite direction," he said. "This type of activity is usually the first signs of directional change in prices (trend change). Fundamentally we are not becoming bulls, but as a trader we feel that the gas market could be ripe for a short-covering rally. For hedgers we will use any significant rally (75 cents-$1.00) as an opportunity to add to and extend our short position."

DeVooght might just get that opportunity if weather forecasters are correct. Currently there are two systems active in the Atlantic: Tropical Storm Lisa in the far eastern Atlantic and a low-pressure system in the south-central Caribbean. The National Hurricane Center gives the latter system a 60% chance of developing into a tropical cyclone in the next 48 hours.

On top of those two systems, the folks at Commodity Weather Group have been examining computer models and have identified patterns that they think will result in a storm originating in the western Caribbean. As of last Friday they had the as-yet unformed storm originating between Friday and Sunday (Sept. 24 and 26) with possible entry into the Gulf between Sept. 28 and Oct. 3.

In Wednesday's model runs there continues to be a high likelihood of a storm hitting the Gulf. "The biggest change from yesterday [Tuesday] morning is the tracking of the storm before it reaches the Gulf. Many models are now showing more storm interaction with Central America and then with the Yucatan area. This reduction in exposure over the open warm waters of the western Caribbean would reduce the chances of [Hurricane] Matthew becoming a major (Category 3-plus) storm before it lifts northward," said Commodity Weather Group President Matt Rogers.

©Copyright 2010 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.