Though a casual look at the 4.7-cent increase and $4.677 close in September futures might suggest the trading action was price-supportive Tuesday, that analysis fails to take into account the myriad of factors that paint a decidedly bearish picture of the trading session. Not only did the natural gas futures market fail to keep pace with crude oil prices Tuesday, but it also lacked any substantial buying boost after probing down to key support at $4.60 on Monday. At 51,457, estimated volume was also weak, evidence that the market is without a clear consensus.

After watching September futures open higher Tuesday morning, many traders were optimistic that the market was ready to put Monday’s declines behind it. After all, critical support at $4.60 had held, offering end-users the golden opportunity to play catch-up on their hedging programs. Prices moved higher for the first hour of trading Tuesday, but ran head-on into heavy overhead selling. Weak longs were the first to take profits and by noon the prompt month was back down below the $4.70 level.

By comparison, crude oil bulls did not flinch Tuesday. Buoyed by a bombing in Indonesia and ahead of potentially supportive Department of Energy inventory data Wednesday, September crude rallied to a new contract high at $32.49, just a tick below the recent prompt-contract high notched by the July contract back on June 11. September crude closed at $32.22, up 38 cents for the session.

With natural gas unable to rally more strongly even as the nearby crude oil contract made new highs, market-watchers now look for a break of support. “Having found the limits of its ability to rally Friday and [Tuesday], we think the odds now favor September natural gas probing the downside, with a break of the $4.58-60 lows from last week providing some idea of how close the market is to establishing a longer-term bottom,” wrote Tim Evans, of IFR Pegasus, in a note to customers Tuesday.

Fundamental factors do not help the bearish technical outlook. While noting that short-covering is always a possibility, Evans expects the market to continue to choke on the rising tide of storage levels. “Thursday’s DOE report is likely to show a further 75-85 Bcf net injection, easily topping the 51 Bcf five-year average refill. Cool temperatures forecast for much of the eastern U.S. next week will probably dictate a further erosion in the remaining year-on-year deficit.”

The only potentially bullish factor out there, Evans continues, is the tropical wave east of the Leeward Islands in the Atlantic Ocean. But even that threat to natural gas supplies is questionable on two counts: “it may not develop into a more serious storm and it may track toward the Bahamas rather than into the Gulf of Mexico,” he continued.

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