September natural gas futures parted ways with a strong crude oil market and settled lower Tuesday as traders cited the inevitability of a $2 handle and economic and weather reports were unsupportive. September futures dropped 6.7 cents to $3.096 and October fell 9.1 cents to $3.464. September crude oil jumped $2.44 to $69.19/bbl.

“It looks like traders are ready to put a 2 in front of this market in the next day or two. It could trade down to $2.85 to $2.90,” said a New York floor trader.

He pointed out that nothing had really changed to move the market higher. “Storms have no impact, and it looks as though we put a 2 handle in front of this market before it picks its head back up.” The trader said there were not a lot of bids below the market that would likely stem additional selling, and traders were content to let the market drift lower.

Bulls were on the defensive prior to the open of floor trading as the 8:30 a.m. EDT release of data on housing and producer prices easily underwhelmed the market. The Commerce Department’s report on July housing starts was expected to show starts at a 605,000 annual rate, a hefty improvement over June’s upwardly revised 587,000. The actual figure came in at 581,000. A year ago, however, housing starts were nearly a million units annually. The Labor Department’s July Producer Price Index was expected to come in at a minus 0.3%, down from June’s elevated 1.8% reading, and the actual figure was minus 0.9%. Lower energy and automobile prices were cited as the cause of the drop.

Top analysts see any turnaround in the direction of natural gas futures for the moment dependent on tropical storm activity, but with Ana now downgraded to a tropical wave and Hurricane Bill expected to take a northwesterly turn (see related story), bulls will have to find another market-moving development to rely on. “Projecting out through the balance of this week, the process of lifting this market off the seven-year lows will require a significant storm event capable of threatening the Gulf Coast region,” said Jim Ritterbusch of Ritterbusch and Associates. He added that additional storms were not currently showing up on radar as there appears to be little action behind Bill capable of developing into a major tropical storm. “All in all, we would continue to steer clear of the long side as long as this market posts fresh daily multi-year lows,” he said in an afternoon note to clients.

What is left of Tropical Depression Ana was headed toward Jamaica Tuesday afternoon and was now a tropical wave with thunderstorms and strong winds. The National Weather Service (NWS) gave no indication that it was likely to restrengthen.

Category Two Hurricane Bill continues to charge westward across the Atlantic. At 2:05 p.m. EDT it was 705 miles east of the Leeward Islands and was headed west-northwest at 14 knots. Maximum sustained winds were 90 knots with gusts up to 110 knots. Bill was expected to strengthen over the next 48 hours and make a turn to the northwest. If its projections are correct, Bill will head toward Bermuda.

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