The expiring August natural gas contract is set to open a penny higher Tuesday morning at $3.76 as traders square positions ahead of contract expiration yet still see plump storage builds containing any price rallies. Overnight oil markets were mixed.

Jim Ritterbusch of Ritterbusch and Associates sees the primary price driver to be the dynamic of “deficit contraction in large chunks” and suggests that will make for a trading environment in which “failed price rallies as seen [Monday] will be developing with increasing frequency.

“Although this market saw an unusually wide trading range of more than 12 cents [Monday], it didn’t stray from unchanged levels. And although downside follow-through was negligible after posting fresh eight-month lows, we are still viewing the chart picture as bearish with [Monday’s] action reinforcing our expectations for a decline to the $3.60 area.

“Weekend updates to the short-term temperature views continue to favor unusually cool trends especially within the six-10 day time frame. Deviations from normal of at least 9-10 degrees were expected in some regions. And while the more extended views across next week are showing patterns closer to normal, trends still appear conducive toward some strong storage builds for at least another three EIA reports. Thursday’s release should show an upswing larger than the prior week and at least double the five-year average.”

He said his firm’s expected 97 Bcf storage inventory increase would exceed last year by some 40 Bcf.

Today’s expiration of the August contract is anticipated to show further contango expansion, an indication of a well if not oversupplied market, “with August possibly going off the board at more than a 2-cent discount to the September contract,” Ritterbusch said.

Technical analysts offer some hope to the bulls if the market can form a “double bottom” in the $3.65 area. “Can the September contract double bottom into the 3.656-3.582-3.487 zone? If so, we will have a case for a seasonal cycle bottom and an immediate buying opportunity on our hands,” said Brian LaRose, a technical analyst with United ICAP. “If not, the A=C objectives from $6.493 will be our next downside targets. (A)=(C) in percent loss targets $3.225-3.176. (A)=(C) in price loss targets $2.622-2.581.”

The National Hurricane Center has identified a system of showers and thunderstorms moving to the west-northwest 1,600 miles east of the Windward Islands that it says has a 70% chance of developing into a tropical depression in the succeeding 48 hours. “The track takes the storm into the Bahamas, with questionable intensity early next week,” said WeatherBELL’s Joe Bastardi.

In overnight Globex trading, September crude oil shed 92 cents to $100.75/bbl and September RBOB gasoline gained a penny to $2.8394/gal.