Spot month natural gas futures settled unchanged, but more deferred contracts retreated in active trading Tuesday on the New York Mercantile Exchange. Traders cited an interest by funds and managed accounts toward the sell side of the market, and in the longer term analysts suggested that if there were no major production-disrupting hurricanes this season, prices could fall more than another dollar.

The September contract was flat at $8.726 and October retreated 1.6 cents to $8.820. September crude oil fell $2.24 to $119.17/bbl.

“The black-box funds are playing the market from the short side and there is new additional fund money also coming in on the short side. These guys can’t get enough,” said a New York floor trader.

He added that the funds were looking at price objectives “below $8. We are taking out crucial levels of support on a daily basis, and today’s low [overnight trading] was $8.335.” He noted that the market was recovering well from the overnight drop, and “a lot of shorts are short-term and are covering quickly.”

“Selling rallies would be a better way to play the market than to initiate a random short. Anytime the market pops its head up like it did at $8.84 on the floor, it’s a good selling opportunity. Anytime the market rallies, you sell it. The trend is lower.”

Longer term traders see the market continuing lower as well. “I think the support in the high $8 area is only temporary, and today you had a bit of a ‘dead-cat’ bounce,” said George Ellis, a director at the Bank of Montreal in New York. He suggested that the bounce might take prices as high as $9.15 to $9.20, but then you “sell it again.”

Ellis admitted that a bullish consideration was the fact that storage was running behind a year ago, but “I don’t think storage is a huge issue and prices are normalizing back to an area that makes sense and is the correct value for this market. If we can get out of this season without a major hurricane, we can see a $7 handle. I think the market finds a bottom at $7.50.”

Weather bulls will have to deal with unsupportive temperatures and a near-term tropical outlook showing no active systems. “Updates that now extend beyond mid-month are suggesting relatively normal temperature patterns following a sizable warm-up during the past weekend and into today. Consequently, storage injections going forward are not likely to be affected appreciably,” said Jim Ritterbusch of Ritterbusch and Associates.

AccuWeather.com reported that Tropical Storm Edouard came ashore Tuesday morning near the Texas-Louisiana border sporting 65 mph winds, but no major damage was observed. At 2 p.m. EDT Edouard was located about 35 miles east of Houston. The forecaster is monitoring several tropical waves in the Atlantic but does not identify any organized systems.

Ritterbusch is standing aside for now. Monday’s price plunge carried further than what was anticipated and “has exceeded our downside expectations and has forced a move to the sidelines following this morning’s decline to below the $8.64 level,” he said in a Tuesday morning note to clients.

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