There would be no resistance test of $5.192 for the sixth out of the last seven days on Tuesday as the July natural gas futures contract continued to probe the downside. After mustering a high of only $4.888 on the day, the prompt-month contract recorded a low of $4.691 before closing Tuesday’s regular session at $4.756, down 11.7 cents from Monday’s finish.

The three-day decline that began last Friday now stands at 40.6 cents, but a number of market watchers see this most recent pullback as profit taking ahead of yet another run-up.

“The natural gas market is extending Monday’s drop as traders have become disappointed that there isn’t even more heat in the forecast, and seem to have become complacent regarding the hurricane season threat to production from the Gulf of Mexico as well, even as low-pressure system 93L is given a 40% chance of developing into a named storm by the National Hurricane Center,” said Tim Evans, an analyst with Citi Futures Perspective in New York. “The system is even on a track that could carry it into the Gulf of Mexico next week.”

Meteorologists at AccuWeather.com said Tuesday the overall weather pattern and ideas from several computer models show that the odds are increasing for tropical cyclone formation in the western Atlantic Basin before the end of the month. “At the very least, a period of rough seas and strong thunderstorms will affect part of the Gulf of Mexico next week,” said Alex Sosnowski, a meteorologist with AccuWeather.com.

The forecasting firm’s hurricane and long-range expert meteorologist, Joe Bastardi, compares the current weather pattern in the Atlantic Basin to a “tropical brew that is ready to boil over.”

Sosnowski said one wave that is bound to cause trouble is currently drifting slowly westward through the central Caribbean and will deliver gusty, drenching thunderstorms to Hispaniola into Wednesday. He noted that at least one of these models develops a hurricane over the Gulf of Mexico between June 28 and June 30.

While noting that the market might have moved too high, too fast recently, Evans said after the current shake-out he would not be surprised if the market vaulted higher once again. “The price weakness suggests at least some debate over whether the market’s step up from the $4 area to trade $5 or more was already enough (or too much) to price in the hurricane season,” he said. “However, our answer to the question is ‘no,’ and we expect to see a refreshed push toward the $6 mark as the actual storm activity reinforces the conditions that prompted the active season forecasts in the first place.”

A modest revision to weather forecasts aided Monday’s 12.4-cent slide in July futures, and forecasters noted that the trend to slightly cooler temperatures continues. “The overall trends [Tuesday] were same-to-cooler in the eastern U.S. starting in the second half of the six- to 10-day and carrying through the 11- to 15-day,” said Matt Rogers, president of Commodity Weather Group (CWG), a Bethesda, MD-based weather forecasting service. He added that “the CWG outlook is still on the hot side of the model guidance (favoring the European ensembles), but even that is cooler than [Monday]. There is a risk that the eastern third of the country could trend cooler in the coming days.”

Analysts see prices continuing to erode. “From here further downside slippage toward the $4.63 area appears highly likely, possibly by week’s end unless support is forthcoming from Thursday’s storage report,” said Jim Ritterbusch of Ritterbusch and Associates. He said he was looking at this week’s price weakness “as technically motivated given [Monday’s] downside breakout of last week’s tight four-day trading range. We had expected an upside violation into the $5.20-5.25 zone. However, [Monday’s] fifth consecutive test of the $5.19 area and subsequent failure apparently emboldened the funds into reentering the short side.”

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