September natural gas retreated Tuesday as traders factored in a mild change in the temperature outlook. At the close September had fallen 3.3 cents to $4.155 and October had eased 3.4 cents to $4.156. September crude oil fell $1.10 to $93.79/bbl.

Tim Evans of Citi Futures Perspective in New York said, “The six- to 10-day forecast [is] looking a bit cooler than it did yesterday [and] demand prospects have been downgraded a bit at the margin.

“There’s some talk in the market about potential coal-to-gas fuel-switching should prices fall to the $4.00 area, but we don’t think that’s a firm floor, particularly as total electricity loads will be falling seasonally in the weeks ahead, reducing demand for both coal and gas. Hurricanes are actually the more critical upside risk at this time of year, and without more traffic from major storms in the Gulf of Mexico, the stage may be set for a September seasonal low in price.”

Students of Market Profile — a market trading methodology that differs somewhat from classical chart patterns in that Market Profile uses the evolving market as its foundation to ascertain future market direction — see the market in a large congestion pattern. Market Profile uses internal market structure to forecast prices and is very much a “present-tense” type approach to market forecasting.

“For the longer term the market is in a massive, sideways horizontal pattern. What we have been telling folks is that this large area of ‘horizontalness’ has a mode [similar to the mode of a typical bell-shaped statistical distribution], the most popular price and the one that has traded the most often is $4.367,” said Tom Saal, vice president of Hencorp Futures in Miami.

The $4.367 has short-term significance for traders in that Peter Steidlmayer, the developer of Market Profile, would trade commodities by buying if the price was below the mode and selling when prices were above under the assumption that the market would return to “value,” i.e., the mode.

“Steidlmayer would say on one of those tests back to the mode you are going to get a rocket shot away from it, and that’s how you know you are breaking out,” said Saal.

If the assessments of more fundamental analysts are taken into account, it would appear that the “rocket shot” would be lower.

In their view the weather-storage dynamic paints a fundamentally bearish picture. “Temperatures are forecast to be hot in the Texas-Kansas Midcontinent corridor, but readings will be more moderate in the Great Lakes and along the East Coast, it seems. There is nothing out there that suggests we will see a repeat of the brutally hot weather across most of the country that we had two weeks ago,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.

“It was extremely hot then, but we still were unable to withdraw enough gas from storage to make it a bullish picture. Either the heat was not sustained enough or production is just too high right now. When we last had temperatures that hot across that much of the country, in 2006, it was more sustained (across two to three weeks) and production was significantly less in terms of shale gas output.”

Between July 10 and Aug. 1, 2006 spot futures made a hefty advance from $5.390 to $8.619.

“Last week’s other main factor, which could have worked out differently, was Tropical Storm Don. It certainly had a bullish trajectory,” Beutel said. “It just lacked the wind speed to do any serious damage, thankfully. No one wants these storms to end up as bullish factors because of what that entails, but last week’s trajectory, if it had been experienced in August or September, might have been a great deal more substantial in terms of impact on the market. It is still hard not to be bearish after seeing a sizzling heat wave add 43 Bcf to storage.”

Don is done, but Tropical Storm Emily has formed in the eastern Caribbean. At 5 p.m. EDT the National Hurricane Center said Emily was 185 miles south-southeast of San Juan, Puerto Rico and was heading west-northwest at 12 mph. Maximum sustained winds were 50 mph and the storm was expected to approach Hispaniola late Tuesday or Wednesday.

Matt Rogers, president of Commodity Weather Group, said in a morning report the “newly named Tropical Storm Emily is struggling to remain intact due to nearby high wind shear and dry air entrainment. This means it may not even survive its Wednesday Hispaniola/Cuba crossing.”

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