After reaching a new high for the week early in the session, natural gas futures slid back down near unchanged Thursday afternoon as traders appeared content to follow a “sell-the-rallies” trading strategy. October finished the session at $2.44, up 2 cents on the day, but more than 6 cents off its highs. Estimated volume was light, with just 71,254 contracts changing hands.

Market watchers agreed it was difficult to pick a winner in yesterday’s trading session. Although bull traders managed to hold onto a slice of early-session advances, they failed to test resistance confluent with the $2.52 highs notched last Wednesday and Thursday. Bears, on the other hand, may have lost the battle by conceding a second-straight positive close, but succeeded in that they were able to mitigate the follow-through buying on the heels of Wednesday’s storage report.

According to the American Gas Association, 77 Bcf was added to underground storage facilities last week, bringing storage to 78% full at 2,572 Bcf. While the injection easily exceeded both last year’s 42 Bcf refill and the five-year average build of 69 Bcf, it came in at the low end of the 77-100 Bcf range of market expectations. Last week the AGA announced a 76 Bcf refill. Storage now stands 386 Bcf above year ago levels and 216 Bcf above the five-year average.

However, storage figures and rally selling may be forced to the back burner today as traders learn more about the development of two tropical systems in the eastern Atlantic Ocean.

As of press time last night, the National Hurricane Center was monitoring a tropical wave located 800 miles west-southwest of the Cape Verde Islands as well as another tropical wave passing to the south of the islands. Conditions in both instances appear to favor strengthening within the next couple of days, the NHC said.

Looking ahead, Tom Saal of Pioneer Futures in Miami maintains that the market is guilty of being bearish until proven innocent. Accordingly, Saal recommends selling into rallies and expects prices to trade back beneath $2.37 at least once in the next several sessions.

Citing the suddenly active tropical outlook as well as the market’s seasonal propensity to shuffle higher, Tim Evans of New York’s IFR Pegasus likes the long side of the market right now. “Tropical Storm Erin may be a dud, but there is rain in the Caribbean and two tropical waves in the Atlantic to watch, increasing the chances that the Gulf of Mexico may see a real live hurricane this year after all. We also think short covering may be an attractive option for at least some segments of the speculative shorts here, both on seasonal grounds as prices usually rise in September and on a risk basis as there might not be that much additional room for prices to tank,” he reasoned.

If proven wrong, Evans suggests liquidating October longs at $2.32.

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