In sympathy with lower crude oil prices and in reaction to the virtual certainty that neither Tropical Storm Dolly nor Edouard will pose a threat to production, natural gas futures continued their week-long descent Tuesday as locals and commercial traders liquidated long positions. With a gap-lower open on the daily chart, bears set the tone right from the outset. However, by 11 a.m. EDT, the selling pressure had dried up, leaving the market to chop sideways throughout the rest of the session. October finished at $3.132, up 3.2 cents from its morning low, but down 16.4 cents for the day.

After peaking at more than $30/bbl in the middle of August, crude oil finished the month with a string of losses. On Tuesday that price slide was accelerated as analysts discounted the possibility that the U.S. will mount a military campaign to oust Saddam Hussein. “With Iraq in a cooperative mood, the crude oil market is now working to wring out any war premium from the price,” wrote Tim Evans of New York-based IFR Pegasus in a note to customers Tuesday. October crude finished at $27.79 Tuesday, down $1.19 for the session.

Also of impact on natural gas prices Tuesday was the diminished threat that either of the storms the market was watching on Friday would find its way into the Gulf of Mexico. With Dolly headed north toward Bermuda, Tropical Storm Edouard located to the southeast of Florida posed the only real threat to Gulf Coast offshore production rigs. But while the National Hurricane Center gave Edouard a 46% chance of striking Daytona Beach, FL, it estimated only a 10% probability the storm would reach Mobile, AL.

Although above-normal temperatures are back in the forecast across much of the country for the September 9-13 time frame, market-watchers believe the heat may be too little too late to boost gas prices. Of more imminent impact, sources agree, is this week’s storage report, which is expected to feature another large injection figure. By comparing injections over the last four weeks against cooling degree days, Thomas Driscoll of Lehman Brothers in New York calculates that the market injected about 60 Bcf last week. If correct, the injection would exceed last week’s refill of 59 Bcf, but fall short of last year’s figure of 76 Bcf.

In sharp contrast to the bearish fundamental outlook, technicals remain solidly in bulls’ favor. By rebounding ever so slightly Tuesday afternoon, the October contract failed to fill in a gap down to $3.07 on the daily continuation chart. On the upside, Friday’s low at $3.25 is an objective confluent with the top of the chart gap created by Tuesday’s lower open. If the market turns higher Wednesday, it could get a boost from short-covering ahead of Thursday’s storage report, sources agree.

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