October natural gas retreated Tuesday as not all traders are on board with historical seasonal weakness leading to higher prices and the funds and managed accounts being unwilling to push the market lower from present price levels. October lost 3.1 cents to $3.798 and November shed 4.7 cents to $3.885. October crude oil rose $1.19 to $86.89/bbl.

“I don’t buy into the argument that the funds are unwilling to add additional short positions at these levels. I think it could happen,” said Eric Bentley, CEO of VKNG Energy LLC in New York.

“The [injection] number we are looking at this week is a build of 92 Bcf to 95 Bcf, and the numbers I’m hearing for next week are for builds of over 100 Bcf, so I don’t know if traders are going to be too tentative about pressing the market lower. It makes fundamental sense that the market is vulnerable, and that is why the market has had such a hard time keeping its head up.”

He noted that in Tuesday’s activity “there are some black boxes that are covering shorts, but I think they will look to reset up to $3.85 to $3.90 or if we can get to a $3.75 handle we might see some stops. It’s not completely out of reason that we could trade $3.50.

“Conversely, you might find some guys looking for a dip area to buy, thinking $3.75 to $3.85 was a good area to hold and own. They might be subject to getting flushed out if the market makes a significant dive. With Thursday’s [storage] number coming out it should be interesting to see who blinks first.”

Whoever blinks first will also have to deal with forecasts calling for a cool Southeast and warm West. MDA EarthSat in its six- to 10-day forecast shows a ridge of below-normal temperatures centered over Tennessee, but west of Arkansas and all the way to California temperatures are expected to be above to much above normal. “The forecast carries similar themes to [Monday] overall, with the warmest conditions out West and the coolest over the Tennessee Valley. A cut-off upper-level low will continue to cause problems over the Midwest and East through at least mid-period.

“These features are historically extremely slow-moving, tend to produce plenty of wet weather (in this case over the East), and keep conditions fairly cool underneath. While somewhat dependent on rainfall, the Northeast has turned warmer early, while the Midwest was cooled. The Pacific Northwest should undergo some gradual cooling trends as ridging shifts inland.”

Some analysts are favoring a more positive price posture. “[The] rationale behind our recent shift from bearish to bullish in this market is based primarily on the fact that supplies remain at a deficit against both average and year-ago levels and are unlikely to approach last year’s record supply peak of 3.84 Tcf,” said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.

“Furthermore, we don’t expect the money managers, etc. to press the short side assertively at these lower price levels. We feel that any significant weather-type events looking out through the rest of this month are apt to be bullish than bearish, and as a result another phase of fund short-covering could easily be forthcoming.”

Others are studying the link between equity markets and the chance for a pre-season rally in natural gas. “We still have…questions that only further price action can answer,” said Walter Zimmermann, vice president at United-ICAP, in a weekend note to clients.

“Will the stock market and the U.S. Dollar remain stable long enough to allow a pre-season rally in energy commodities? Mere stability in equities and currencies has not been bullish enough for energy. Week after week our main comment for crude oil, petro products and natgas has been ‘still congesting.’ Evidently the markets do not believe the recent spate of financial stability will endure. The skeptics certainly have history on their side.”

Specifically regarding natural gas he said, “Last year was clearly the outlier. Prior to the year 2010, the latest arrival of a seasonal cycle low were the dates Sept. 27, 2006; Sept. 26, 2003; Sept. 26, 2001; and Sept. 23, 1994.” The corresponding dates for this year are fast approaching, he noted.

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