October natural gas is expected to open a penny higher Wednesday morning at $3.99 as traders balance a historically strong performance of the October contract against the outlook for plump storage injections going forward. Overnight oil markets recovered somewhat from Tuesday's drop.

Wells Fargo analysts David Tameron and Gordon Douthat took a look at Tuesday's price action and put it into some kind of historical perspective. "We looked at the past five years' price action for the same day and saw that yesterday's drop was the largest since 2008. Meanwhile, between 2009-2013, price movement the day after Labor Day ranged from -2% to 3% with the average about 1.3% -- so what gives?"

Tuesday's free-fall of more than 4% clearly falls outside that range, and Tameron and Douthat admit they aren't quite sure why the drop was so large. They did offer the observation that "sentiment swings to extremes, and there is seasonality in natural gas prices, [and]...over the past 20 years, the October contract has finished higher than the September contract 16 of 20 years with average uptick about 12.5%. This could lead to short-term opportunities within gas-levered names."

By all accounts any 12.5% rise in the October contract is going to have to fight some serious production headwinds. Tameron and Douthat note that the EIA reported Friday that "On a year-over-year basis, Lower L48 production grew 5 Bcf/d (+6.8%) while Total U.S. production was up 5.61 Bcf/d (+6.9%); 'Other States' posted the largest (and quite impressive, in our view) y/y rise at 5.1 Bcf/d (+19.6%) while Louisiana posted the largest decline (-15.3%, or -1 Bcf/d) [see Daily GPI, Aug. 29]."

Tuesday's nearly 18-cent drubbing underscores just what kind of weather and temperature regime is necessary these days to score even a neutral storage result, according to Tim Evans of Citi Futures Perspective. Evans calculates a 70 Bcf build for Thursday's EIA storage report but sees future injections approaching 100 Bcf. The current year-on-five-year deficit stands at 518 Bcf, and if Evans' figures are correct, that will narrow to 466 Bcf by Sept. 19.

"With seasonal cooling demand tapering off, we note the rate of storage injections will also be rising in the weeks ahead, with an associated risk that we may see new lows in price before heating demand ramps high enough to bring the market back into a stronger seasonal balance."

Evans still ultimately favors the long side with a limit buy order in the October contract at $3.68 concurrent with a protective sell stop at $3.48 to limit risk on the trade.

In its 8 a.m. EDT report, the National Hurricane Center said Tropical Depression Dolly had moved inland over Mexico and winds were down to 35 mph.

In overnight Globex trading October crude oil added $1.04 to $93.92/bbl and October RBOB gasoline gained 3 cents to $2.5770/gal.