September natural gas futures retreated Wednesday as traders noted continued pressure on the front end of the board, but suggested the market was well supported at lower price levels. At the close September natural gas fell 6.2 cents to $3.479 and October shed 4.5 cents to $3.767. September crude oil gained 71 cents to $70.16/bbl.

“You will have a lot of interest in this market from $3.45 to $3.34 with crude oil over $70. I think there will be a lot of scale-down bids,” said a New York floor trader. He noted that the front of the curve was weak and the back months relatively strong, with spreads the preferred trading vehicle. “October-November had a three cent greater contango day and September-November moved out 5 cents. There’s a little more safety in spreads. I think the market is well bid at lower prices,” he said.

Longer term, analysts see the market stuck in a rut. “We are in a classic quagmire,” said a New York banker. “Cutbacks from major producers saying ‘we are not going to pull gas out of the ground because it doesn’t make sense at these levels’ is keeping the price up, but at the same time there are consumers who are saying ‘$4 doesn’t make sense to me but $3.50 might.’ Right now we are in the doldrums of the price will not move either way…and that has been the case for the last couple of weeks. Longer term I am still bearish.”

Tropical Depression Two continues to march westward. The National Weather Service (NWS) said that at 11 a.m. EDT TD 2 was 630 miles west of the Cape Verde Islands and was moving at 13 mph. Maximum sustained winds were 35 mph, just below the 39 mph needed to upgrade to Tropical Storm status. NWS said “slow strengthening is possible and the depression could become a tropical storm during the next day or two.”

Market observers say some strengthening may be necessary if the market is going to hold in this area.

“Unless some evolving storm systems in the distant Atlantic become more clearly defined as a threat to the U.S. Gulf Coast production infrastructure, this market could be poised for a brief extension into sub $3.50 price levels,” said Jim Ritterbusch of Ritterbusch and Associates in a note to clients.

Ritterbusch, however, is looking for September futures to remain boxed in at the $3.50-4.00 zone for most of the time, but “further price declines below the $3.50 mark could present some longer-term buying opportunities for quantity-type traders looking to approach the long side on a scale-down basis.”

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