July natural gas futures retreated Tuesday as weather bulls were forced to concede to moderating temperatures in eastern consuming markets and crude oil tumbled. At the close of floor trading July natural gas fell 16.9 cents to $12.435 and August shed 16.8 cents to $12.516. July crude oil skidded $3.04 to $131.31.

Traders following the fundamental dynamics of the natural gas market saw Tuesday’s decline right in line with current weather expectations. “The fact that natural gas sold off 17 cents because of the end of the heat wave in the East sounds like normal fundamentals. A 17-cent sell-off given that it is the end of 98 degree temperatures for all the East Coast sounds about right,” said a Washington, DC-based analyst.

He added that the question was is anyone willing to step up and sell this market given a solid fundamental reason to be selling in the face of knowing what crude oil is capable of doing. “If you are still in the long crude oil-short natural gas spread that a lot of noncommercials are in, how much can you still make on that?” the analyst queried.

“I don’t think any producers are scared about lower prices and willing to start hitting it on the sell side from a fundamental standpoint. We have done a little bit of selling on the way up, some at $12.500, but some clients are saying ‘no, it’s still going higher.'”

Weather bulls may not have near 100-degree readings in populous energy markets on their side, but warm temperatures are forecast to stick around. Weather.com reported that Tuesday New Yorkers sweltered under 97 degrees and Bostonians baked in 98 degrees, but by Friday temperatures in New York were forecast to ease to 87, still 11 degrees above normal and Boston was expected to see temperatures subside to 80, five degrees above normal.

Longer term analysts don’t see a fundamental reason to sell even in light of moderating temperatures and suggest that prices still have room to work higher in view of the fact that increased production is not viewed as adequate to bring supplies up to satisfactory levels. “Although supply side response to a high price environment has been more robust in this market than in the oil, production increases have been insufficient to close the gap against the higher supply levels of the past couple of years,” said Jim Ritterbusch of Ritterbusch and Associates.

He pointed out that although prices have moved sharply higher in the U.S., overseas price gains have been greater. “This has tended to steer LNG [liquefied natural gas] cargoes away from the U.S. and toward other consuming regions. As a result, an arbitrage shift will be required if the U.S. is to attract sufficient LNG supply to facilitate ample supplies ahead of the next heating season,” he said in a note to clients.

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