October natural gas futures went off the board on Tuesday with a whimper as the contract traded in a range of just more than a dime before expiring at $3.837, up 3.7 cents from Monday's close. Taking over as the new front-month contract, November futures added 3.5 cents Tuesday to finish at $3.951.

Those looking for fireworks on the October contract's expiration were sorely disappointed as "not a whole lot happened," said a Washington, DC-based broker. "It was a very quiet trading session that added confirmation to the belief that natural gas futures are comfortable in the current range. We are still modestly bullish from technicals, although they are not going anywhere fast. It appears this market is in 'wait-and-see' mode on just about everything."

He told NGI that the natural gas market on the whole is still dealing with the issue of decent demand, but as much supply as anyone could want. "Who is to think that any increase in demand right now can't be met by the production that is coming out," he said. "There are royalty owners in Pennsylvania who have acres upon acres that have not been drilled yet. Any time they want to they can drop a spud in and start producing. So the upside appears constrained, but the prospects to the downside don't look any better.

"In my view, the market is not going to break dramatically lower because if it was going to...it already would have. We finished summer and have moved into shoulder season, so if you were going to sell it off to reflect production levels, it likely would have already been done. In addition, traders are now actively monitoring winter weather forecasts, which will hold us from breaking significantly lower at least for the intermediate term."

Taking an early peek at Thursday morning's storage report for the week ending Sept. 24, Bentek Energy said Tuesday it expects the Energy Information Administration to report a 67 Bcf injection, which would bring inventory levels to 3,407 Bcf.

Taking into account last year's date-adjusted 64 Bcf addition for the week, a 67 Bcf addition would continue the recent trend of cutting down the year-on-year deficit. "For the week ended Sept. 24, Bentek projects a build higher than 2009 for the third consecutive week," the research firm said in its storage note. "Prior to this, injections have been an average 10 Bcf/week lower than last year's pace since the season started April 1."

For the week Bentek expects a 41 Bcf build in the East Region, a 20 Bcf build in the Producing Region and a 6 Bcf build in the West Region.

Back to futures, traders have been interpreting the market's ability to maintain a trading range as indicative that burdensome supplies are not going to be able to push the market lower.

"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. In his view, traders should always be on the lookout for "markets that are ignoring negative news and moving in the opposite direction. This type of activity is usually the first sign 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."

Activity in the Atlantic Basin continues, but conditions continue to steer storm systems away from oil and gas production infrastructure in the Gulf of Mexico. Case in point: Tropical Depression 16 formed Tuesday in the northwestern Caribbean and has a fair shot of becoming Tropical Storm Nicole over the next 48 hours, but models have the storm likely impacting Cuba, then taking aim at Florida and the U.S. East Coast later this week, according to AccuWeather.com.

©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.