After a flurry of activity that first dropped and then boosted prices in the first 70 minutes of trading, the August natural gas contract settled down to trade quietly sideways for the remainder of its penultimate trading session Monday. With the contract set to expire Tuesday at 2:30 p.m. EDT, and weather and storage outlooks unchanged from last week, neither bull nor bear were willing or able to exert a price move in their favor.

August finished at $4.70, down a scant 0.6 cents for the session and in the bottom half of its 17-cent trading range for the day.

Traders agreed that after closing Friday so close to the market’s weekly low at $4.66, a test of that threshold was on tap for Monday. As it turns out, that expectation was realized right off the bat as August futures gapped lower at the opening bell by posting a $4.63 opening trade. However, little or no follow-through selling was observed and prices quickly filled in the chart gap on the move higher. Bulls propelled prices higher through mid-morning, but they too lacked the conviction to produce a sustained price move.

A quick look at where we are and where this market has been tells the story of the tenuous trading activity Monday. Over the course of the last eight weeks, prompt month gas futures have fallen just shy of $2, a drop of roughly 30%. With a hefty chunk of those losses occurring since August became the spot contract, there is the fear that a short-covering rally will lift prices on its expiration-day Tuesday. On the flip-side of that coin are the fundamental tandem of weather and storage, which continue to present a compelling reason to be short this market.

According to the latest six- to 10-day weather forecast released Monday by the National Weather Service, above normal temperatures can be expected in the Northeast, the Northwest and across parts of the Northern Plains. Meanwhile, below-normal mercury readings are likely along the coast of California as well as across parts of the Southeastern US.

Also in bears’ favor is last week’s weather, which tallied a cooling degree day total below both last year and the historical norm. Armed with this sort of data, market watchers were out in droves posting their predictions for this Thursday’s storage report. Early consensus estimates call for a build of 75-95 Bcf, in line with last week’s 83 Bcf refill, but still well above the year ago injection of 48 Bcf and the five-year analog of 55 Bcf.

Realizing technicals are of little consequence on expiration-day, most chartists have switched their focus to September futures where they see immediate support in the $4.60-65 area. The final August price, meanwhile, will be a matter of who is willing to make or take delivery and at what price.

Prior to the current move below the $5.00 level, previous attempts to break under $5.00 were gobbled up by utility and end-use buyers who were behind on their hedging following the $6.00 prices of this spring. Now with prompt futures prices having dropped convincingly below the $5.00 mark, it is likely that those same buyers will again look to lock in at current levels. That buying push, coupled with any last minute short-covering, could be the recipe for a rally Tuesday.

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