September natural gas futures fell Wednesday as traders anticipated the release of inventory additions well above last-year and seasonal norms, but it was not enough to dampen the case for a seasonal advance, analysts pointed out. At the close September had fallen 7.1 cents to $3.922 and October had retreated 7.9 cents to $3.889. October crude oil shed 28 cents to $85.16/bbl.

Market analysts see a solid case for higher natural gas prices based on seasonal and technical factors. “The market has held triangle support, market sentiment is down to 18% bullish, which signals a buying opportunity, and Labor Day is fast approaching,” said Walter Zimmermann, vice president at United-ICAP.

“We have this rule that if you are a trader ‘don’t be short natural gas after Labor Day.’ No matter how bearish the fundamentals, or how hurricane-free the forecast, and no matter how mild the winter estimates are, 19 of the last 20 years have had a strong September to November pre-season rally.

“Everything seems to be lining up to nail the shorts here. The only thing that may save the shorts is if the stock market utterly and completely collapses into a free-fall. That may stunt and inhibit, if not eradicate, any impulse toward a pre-season rally in natural gas.”

When asked if a price fall that breached the trendline would set up a buying opportunity, Zimmermann said “that buying opportunity might involve a retest of prior lows into the $3.20 area. That might be the seasonal cycle low. Increasingly over the last 20 years the seasonal cycle low has been migrating from August to September, and there is an equal probability of the low happening in September. Our most bearish case is a double-bottom into the $3.20 area and then a seasonal lift-off from there.

“The only wild card is the economy. So far the major collapses in the stock market have taken place in October, but that still leaves room for natural gas to stage a seasonal rise in November.”

The release of storage data Thursday may have an impact on how well Zimmermann’s technical-seasonal analysis holds up. The figure could be bullish and keep futures above the trend line, or a bearish number could force a test of $3.20. The last several weeks’ reports have offered traders both bullish and bearish surprises. Last week, for example, an unexpectedly bearish 50 Bcf injection prompted September futures to drop 4.1 cents to $3.892.

Expectations for Thursday’s injection figure are significantly higher and are expected to make a significant dent in the storage deficit relative to last year and the five-year average. Last year 38 Bcf was injected and the five-year average injection pace is 55 Bcf. For the week ended Aug. 19, analysts at Citi Futures Perspective forecast a build of 71 Bcf , and Kyle Cooper at IAF Advisors in Houston predicts a 76 Bcf increase. A Reuters poll of 27 traders and analysts revealed an average 72 Bcf gain with a range of 61 to 80 Bcf.

Analysts had seen Tuesday’s gains as “possible short-covering, aided by an afternoon earthquake centered in Virginia that might have made some traders nervous that pipeline operations could have been affected. A modestly warmer temperature outlook may have also added some incremental air conditioning demand, although our model continues to project moderately above-average storage injections…” said Tim Evans, analyst with Citi Futures Perspective in New York.

Evans forecasts a build Thursday of 71 Bcf and says “the year-on-five-year storage deficit that was 73 Bcf as of Aug. 12 would diminish to 38 Bcf as of Sept. 9. While we would consider the declining supply deficit as mildly bearish, we wouldn’t consider the incremental downward prices as compelling when prices are already near the bottom of the five-year range.”

Weather forecasts show the deep South and Texas no mercy. “While pattern variability continues in many parts of the U.S., the deep South continues to broil, especially toward Texas and nearby areas,” said Matt Rogers, president of Commodity Weather Group of Bethesda, MD. “Occasionally, a model will make an attempt to push a cold front down through to Texas, but for the most part the models keep a dominant hot ridge. Otherwise, some heat gets into the Midwest and East at times, but no severe levels are expected. We see warming trends for the Pacific Northwest today in the 11-15.”

In its 5 p.m. EDT report the National Hurricane Center (NHC) said Hurricane Irene was sporting winds of 120 mph but with a revised trajectory heading more toward New England and grazing North Carolina and Virginia.

NHC said it was also following a low-pressure system 1,200 miles east-northeast of the Leeward Islands with a 10% chance of development into a tropical cyclone in the following 48 hours. It also reported an area of low pressure becoming better organized 200 miles southwest of the Cape Verde Islands, and this was given a 60% chance of development, up from an earlier assessment Wednesday morning of 50%.

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