The September gas futures contract found its footing on Tuesday after Monday’s 18-cent stumble, but struggled to gain much ground in a relatively quiet trading session. The near-month contract ended the day up 3.8 cents to $2.716 with a high of $2.745 and a low of $2.690. October rose 3.5 cents, and the winter strip inched up to $3.436.

“What didn’t happen was continued follow-through to the downside,” noted Tom Saal of Pioneer Futures. “I expect the market to probably test Monday’s high ($2.760) and maybe try and get into the gap created on Monday. I’m not a big fan of storage dictating directional prices [this week]. I think the funds have been the major sellers recently. They were huge sellers [Monday], but at least for now they are not continuing to add to their short position. If the market starts to rally and gets a little momentum to the upside, they may come in and cover short positions and take profits.”

He said a rally could be prompted by a return to above normal temperatures later this week or possibly tropical storm activity in the Atlantic or the Gulf of Mexico. Saal also noted there’s plenty of forward carry in the market, with the winter months averaging more than $3.40, next year averaging $3.50 and 2004 averaging even higher.

He doubts there will be much reaction to this week’s storage data. Saal is looking for a 56 Bcf injection in this Thursday’s storage report by the Energy Information Administration, despite the record heat last week, which some observers believe diverted gas away from storage injections. The heat during the previous two weeks failed to hinder storage injections, Saal noted. Injections reported over the last five weeks have ranged from 60 to 69 Bcf/week.

“If you go back to the last couple weeks when injection were in the 60s and it was hot, then why would you think suddenly injections were going to be at half those levels? asked Saal. “Based off where it’s been ‘percentagewise,’ it shouldn’t be that much lower. If they come out with a 35 Bcf injection this week, then the other two weeks are wrong and they will probably have a revision later.”

Kyle Cooper of Salomon Smith Barney said he’s expecting an injection of 43-53 Bcf. “I’ve seen estimates as low as 20 Bcf and as high as 58 Bcf.” Cooper attributed the continued strong injections in the face of extreme heat to demand being lower than expected and supply not declining as much as people thought. “Second quarter production doesn’t look to have fallen nearly as much as a lot people were expecting. It’s pretty much flat with the first quarter.”

“If injections suddenly fall off rapidly, I think we’ll fall back into the $2.50s [for the September contract]. I think we will head to $2.50, possibly even below that report, eventually anyway, maybe not on the September contract, but sometime before the beginning of the winter.”

Tim Evans of IFR Pegasus expects this week’s injection to be 20-40 Bcf, well below the last few weeks and below last year’s 75 Bcf injection, which should prompt a rally into the mid $2.80s.

If prices turn to the downside, several observers noted that the $2.67 low from Monday would provide weak support and prices could drop to previous failed resistance levels between $2.47 and $2.55.

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