November futures managed to break the string of four losing sessions in a row on Tuesday in what was characterized as bargain hunting and not indicative of any significant fundamental or technical shift in the market. At the close, November had risen 2.1 cents to $3.638 and December had managed to add 1.6 cents to $3.944. November crude oil made it three losses in a row with a drop of $1.94 to $75.67/bbl.

Trading volume was light and analysts saw the day’s rise largely “on what looks like some bargain hunting or light-volume profit taking from those covering shorts,” said Tim Evans, analyst at Citi Futures Perspective in New York. “With no tropical storm threat to production from the Gulf of Mexico and a temperature outlook that seems likely to trim more early season heating demand in the northern U.S. than it adds to southern cooling demand, we think the downside remains open in the near term.”

Weather forecasters characterize upcoming patterns as unlikely to enhance either cooling or heating demand. In its six- to 10-day forecast Commodity Weather Group of Bethesda, MD, shows a broad northeast-southwest trending ridge of much-above- to above-normal temperatures extending from New England and Canada on the north to South Texas and Southern California on the west and south. “The same-to-warmer themes on [Tuesday’s] forecast for especially the Midwest and East Coast are generally bearish on demand as typical early-season heating degree days are not realized. The South leans warmer than normal too, which could offer some slight upside demand for cooling, but the anomalies are less impressive and tropical moisture could dampen Southeast temperatures,” said Matt Rogers, president of the firm. “In the West, seasonal to cool weather is favored with more variability and some storminess.” In the tropics Rogers said a “system may develop in the far western Caribbean late this weekend or early next week that travels north, possibly through the eastern Gulf. High wind shear and fast timing would keep the production threat very low or near zero.”

Last week’s 111 Bcf storage injection caught many by surprise, but bulls may be able to take some solace in that the National Weather Service reports a slight increase in cooling requirements for major energy markets. An increase in cooling requirements may lead to less gas injected reported in Thursday’s storage report. For the week ended Oct. 1, New England received 21 cooling degree days (CDD), 20 more than normal, and the Mid-Atlantic was subjected to 22 CDD, or 17 more than its norm. The Midwest from Ohio to Wisconsin saw 0 CDD, or five fewer than normal.

For the week ended Sept. 24, the period that saw the plump 111 Bcf injection, New England had to endure just 12 CDD, or 11 more than normal, the Mid-Atlantic saw 11 CDD, or three more than its seasonal norm, and the Midwest enjoyed just two CDD or seven fewer than normal.

Observers see the market as still laboring under an array of unsupportive factors. “[W]e look for additional weakness that could eventually carry to around the $3.48 area per nearby futures. Virtually all fundamental items that we monitor remain aligned in a bearish direction,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.

“Mild temperatures are still being projected across the eastern half of the U.S. well into the third week of October. Furthermore, hurricane activity in the Atlantic remains unusually subdued with the likelihood of a major storm expected to diminish going forward. As a result, additional downside pressure could be forthcoming into the front of the curve where any bearish headlines will receive an exaggerated price response given a lack of significant chart support for at least another 10-12 cents down.

“In the background, we will reiterate that the production factor has taken on a much more bearish hue in recent months as the gas-directed rig count has developed an unexpected up-trend.” For the week ended Sept. 30 Baker Hughes reported that the gas-directed rig count jumped 11 to 923, fewer than the 962 rigs drilling for gas a year ago.

Technical analysts have apparently pushed the idea of a seasonal low to the back burner and are now focusing on wave counts and retracements to determine where natural gas prices may be headed next. The next major support level looms at $3.20, but in the interim the market is likely to make some intermediate stops along the way. They are now studying the advance from $3.212 to the June 2011 high of $4.983 and seeing what interim support the market may find as it retraces that advance; 0.7862 of that advance would be $3.593 and 0.8520 of that move would take the market down to $3.473.

“At this point it is going to take something very dramatic and very immediate to avert a [ultimate] retest of the $3.200 support,” said Walter Zimmermann, vice president at United-ICAP.

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