Natural gas futures traders continued to probe $4 support on Tuesday as the September contract recorded a low of $4.027 before closing at $4.039, down 2.7 cents from Monday’s finish.

While Tropical Storm Danielle became a Category 2 hurricane overnight, bulls were unable to capitalize as the system is expected to turn north and spare U.S. interests. Danielle was downgraded to a Category 1 hurricane Tuesday morning and then a tropical storm in the late afternoon.

With storage sitting north of 3 Tcf already and gas demand remaining fairly slack due to a poor economy, some market watchers believe futures could continue to scout lower values unless a hurricane sets its sights on the Gulf of Mexico.

Citi Futures Perspective analyst Tim Evans noted that the natural gas market is keeping the downside open with Tuesday’s modest decline. “We continue to think that the market should be finding support soon, as the year-on-five-year average storage surplus has been declining for the past three months and looks set to post a further decline on Thursday, but the flow of selling has clearly not been exhausted,” he said.

“From an academic perspective it’s interesting that seasonal hurricane activity has picked up and forecasts for an active season may still be on the mark, but unless later storms can threaten production in the Gulf of Mexico the natural gas market is not obligated to take much notice.”

While Danielle will likely spare the United States, hurricanes and tropical storms are expected to start having a bigger impact on the U.S. over the next few weeks, according to the Tropical Forecast Team. Even thought the traditional Atlantic hurricane season officially spans June 1 to Nov. 30,’s Expert Senior Meteorologist Henry Margusity said, “It would not surprise me that instead of predicting snow on Thanksgiving, we will still be dealing with tropical systems. It’s the nature of the type of season we are in.”

He noted that Chief Hurricane Expert Joe Bastardi is predicting a warm fall for the Eastern part of the country, with an abrupt shift into winter by late November. Margusity said warm falls in the East are notorious for late-season tropical storms, which supports the prediction that this year’s hurricane season will extend longer than normal with storms stacking up toward the end.

Top analysts continue to view the natural gas market as oversupplied. “We have more than adequate supplies, and a lot of gas can come to market if demand pushes up,” said Mike DeVooght of DEVO Capital, a Colorado-based trading and risk management firm. DeVooght also contends that the soft U.S. economy has tempered demand, and “even the much-touted hurricane season has been a disappointment for the gas bulls. The lack of any storms moving into the Gulf has been keeping the gas market on the defensive. On a trading basis, we will continue to hold our current short positions.”

DeVooght does, however, recommend that trading accounts hold on to long October $4.50 calls purchased earlier for between 38 and 45 cents. End-users should stand aside, and producers and physical market longs with exposure to weakening prices should continue to hold the balance of a 12-month $5.50 December put offset by the sale of a $7.50 call option that was initiated in December 2009.

Weather bulls can also take heart in forecasts of searing heat not only in Texas but also for the East Coast and California. “The progression of the forecast does shift the East Coast into the much-above category for the heat next week, which should deliver low-to-mid 90s to the East Coast cities (with low 90s in the Midwest),” said Matt Rogers, president of Commodity Weather Group, in the firm’s Tuesday morning forecast. He added that heat is expected to linger in Texas. “Texas started the week very hot (107 in Dallas and 102 in Houston Monday) and should stay very hot [Tuesday] before a cool front starts tearing temperatures down tomorrow for Dallas. California is just starting to see its strong heat, which should peak over the next three days (upper 90s to low 100s).”

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