If you liked natural gas prices in 2010, then it is starting to look like 2011 is going to be your kind of year.

NYMEX spent the week testing support at $3.70, and for the moment is content to linger there. A modest 54 Bcf injection, right at the low end of predicted levels, did nothing to rock the boat.

But now, things get interesting.

As we mentioned last week, August 2010 followed the path of August 2009 (with a dollar added to the price throughout): a headlong drop on the tail of a Summer rally. But the drop of last year was followed by an almost mirror-like rise in September. There was no reason for it then, and there is no reason to assume it will happen now. But as we’ve seen, when there is a way for NYMEX to behave irrationally, you should be very careful how you place your bets.

That said, this has turned into a very bearish week for NYMEX. Despite some generally upbeat economic reports, pointing to slow but steady growth throughout the next year, and the appearance of the first actual hurricanes of the hurricane season (admittedly, heading nowhere near any rigs or production facilities), the word on the street had a distinctly downward trend. Major hedge funds have trimmed their long calls to the lowest level of the year, indicating that they don’t think the $3.70 level is going to hold or any irrational price rebounds are on the horizon. More importantly, First Energy analyst Martin King issued a report that suggested last year’s predictions of 2011 natural gas prices in the $5.50s might have been a dollar high. Mr. King has been one of the most accurate predictors of the natural gas market over the last two years, so these words carry some weight to them.

Could you stand another year of natural gas prices similar to this year? We thought so. And a quick glance at the NYMEX futures through 2011 shows a marked preference for the $4.50 price range all the way through November. Next year could make this year seem exciting and unpredictable by comparison.

But for the moment, predictable is hard to come by at NYMEX. We have a seasonal trend pointing to an irrational price recovery. We have every other sign pointing the way downward. We’ll see which way NYMEX decides to go.

Resistance, finally, was futile.

NYMEX didn’t wait for today’s storage report to call it a day on Summer. Prices started dropping…fast…on Monday, and haven’t stopped.

The report itself was an anti-climax. Many analysts had predicted that this would be the first of a series of large injections, in line with the end of air conditioner season. But the injection turned out to be modest: 40 Bcf, well below average and last year’s record, and only a bit above predictions. Further indications that the market is in balance in terms of actual demand and actual supply.

Why the sudden loss of nerve, which sustained the market throughout the Summer? Some of it was NYMEX catching the wave that swept through virtually the entire spectrum of investors…the Stock Market took a major hammering, as did most of the commodity markets…as a string of bleak economic reports and forecasts finally cut off investor confidence at the knees. Some of it was Mother Nature’s refusal to give speculators any good news: no last-second heat wave to end the Summer season, no hurricanes to speak of.

And some of it was undoubtedly NYMEX chasing its own tail. A comparison of price movement over the past two months with the same time last year shows a marked similarity: July takes a dip, then recovers, and August sinks like a stone leading into September. Of course, last year was seeing record injections and the first rumblings that the storage infrastructure might top out by year’s end, which is not the kind of talk you’re hearing this year. But NYMEX has shown a tendency to follow its own patterns before.

Of course, once the front month swapped last year, prices took off again all the way through October, a rally which had most people scratching their heads before it collapsed in November. Every reasonable indicator points to NYMEX spending the next few weeks seeking a new resistance level for the Fall months, but we need to be mindful of history. Reasonable indicators are only part of the story here. NYMEX may still have a rally or two up its sleeve.

Meanwhile, we are seeing a familiar shape to the price curve once again, with an almost perfect straight line traced from the front month price all the way through December of next year. It would be logical to expect a Winter rally like last year, particularly if storage levels remain relatively low, but there isn’t a lot of confidence in that on display at the moment.

Investors aren’t waiting. They are acting. What they’re thinking, however, isn’t entirely clear.

That sound you hear is NYMEX scraping bottom, and scraping hard. But the bottom appears to be holding.

One of these weeks, we’ll be able to announce something other than “the weekly storage report came in a few Bcf below projections…again.” Just not this week. Twenty seven Bcf injection. Slightly below the projected levels of 28-32 Bcf.

We are hearing some speculation that next week will bring a break to the monotony. And if this is the case, things could get interesting.

For the moment, NYMEX is testing resistance, and resistance is holding. As we said last week, $4.20 appears to be the resistance point for natural gas right now, resistance being the psychological point below which investors won’t go. Despite another bullish storage report, this was a tough week for prices. Employment reports showed that hiring is unexpectedly weak. The economy continues to slumber, and the phrase “double dip recession” is making more and more appearances in the headlines. Hurricanes, on the other hand, aren’t appearing at all. Summer came one mildly-temperatured week closer to winding down.

NYMEX spent the week flatlining. There was a brief run-up before today’s report release, a momentary upward surge, then an equally sudden slump to $4.15. But NYMEX is working it’s way back to the price where it is most comfortable.

Which brings us to next week’s report. A number of analysts are predicting that it will be the first in a series of robust injections that will bring storage levels closer to last year’s record. This prediction has some high-powered adherents. Over the course of the past week, a number of the larger hedge funds did a major switch in their energy trading, moving from long positions (the higher-price bet) to short position (the lower-price bet) in time for the start of Fall. They are now betting that a series of good injections will break resistance and send NYMEX into sub-$4.00 territory, similar to the drop it took last year at this time.

They have missed their bets before, however, so we will wait and watch and see what the coming weeks bring. For the moment, the bottom is holding. And as Fall comes, so will Winter after it.

Four dollars and twenty cents, apparently.

This week established what we have been saying for some time now: $4.20 is the support price for NYMEX for the foreseeable future. A week of precipitous decline, an unstoppable force on the heels of last week’s momentary flirtation with $5.00, hit the immovable object of $4.20 on Monday, and NYMEX has been stuck there ever since. Even today’s report, which came in ABOVE predictions for the first time in months, wasn’t enough to propel prices any lower. Looks like we are stuck at $4.30…most likely until NYMEX tries to push up prices to close out the month in a few weeks.

Unless something unexpected happens on the supply side…demand is pretty much exactly where it was one month, two months, even six months ago…this is what the bottom looks like for the futures market.

Why the sudden decline? Ask your school-age children. They’ll tell you. Summer is almost over, and the looming specter of school days, homework and mild Autumn weather clouds the sunlight of late August. The record temperatures of June are gone: July was only the seventh-hottest on record, and August is playing out on the mild side. NYMEX had one last shot at $5.00 and it was too little, too late. Summer’s fun is over. Time to get a bit more real.

But despite everything, $4.20 is holding fast as support, just as it has done since the initial price decline back in March.

Resistance is proving a bit more dodgy to predict, although it does not appear that all the analysts who predicted $5.50 prices for this year are going to collect on their bets. There have been two rallies above $5.00, but neither got quite that high. If last year is any indication, we won’t be surprised if Winter brings another rally, for nostalgia’s sake if for nothing else. Beyond that, there will doubtless be a few bounces. But we have a good idea where they will land.

By and large, it’s not a bad place to be, and the Weekly Storage Reports suggest that the market has found equilibrium. Current pricing is very close to the break-even level for producers, and many of the larger producers locked in what now appear to be very good prices back at the beginning of the year. There is very little griping from either the buyers or the sellers.

Storage levels are making a beeline for the five-years average…we will be interested to see what happens when and if storage reaches that line. The perception of low storage levels could provide fuel for a late-season rally. We wouldn’t be surprised to see a bit of late-season buying in anticipation of a Winter rise, with buyers looking to minimize storage fees against what will probably be small price differentials. One thing about knowing what the bottom looks like: it makes it a whole lot easier to make decisions that affect your bottom line.

Slightly-below-expectations injection. But you knew that already, didn’t you?

We’ve been tracking NYMEX’s rise over the past two weeks, looking for resistance. Monday, NYMEX kissed the $5.00 mark and decided enough was enough. It has been a downward trend ever since, and today’s bullish storage report did nothing to dissuade investors. Technically, it should have…it becomes more clear with every new report that storage is making a beeline for the five-year average after last year’s record pace…but NYMEX was following a stronger trend, and nothing short of a withdrawal would have prevented it.

For once, there is plenty of news to support the trend: employment figures due to be released are going to be miserable, the record heat of June and July is finally taking a breather, and the hurricane season has officially been given the Summer off via government report. NYMEX took its shot at $5.00, the place it longs to be, but $4.50 feels like a saner place, and the market is heading back to sane for a while.

From a sane perspective, $4.50 is probably where NYMEX belongs. Look back at the charts, all the way back to March and the drop-off from last Winter’s rally, and NYMEX has been bouncing around that level ever since. We have had a brief rally or two, but nothing sustained, and $4.50 seems to be the magnet that pulls NYMEX back whenever investors get a bit too nervy or a bit too pessimistic. It is also…and this is probably no coincidence…the current estimated price at which natural gas drilling is considered to be economically viable. That’s down from last year by almost fifty cents, and a sign that cheaper and more predictable non-traditional drilling is really coming to the fore within the industry.

In other words, after a brief flirtation with volatility, NYMEX is once again…kind of dull. Kind of sensible. Kind of sane. A bit of profit-taking here, a bit of short-covering there, but beyond that a fairly steady ride. It is notable that a number of large hedge funds (who specialize in the short positions we discussed last week) have pulled back on their short positions in natural gas. There were plenty of shorts to go around back in June, when NYMEX roared into a new front month well over the $5.00 mark, but now that NYMEX is feeling the magnetic pull again, even the short-sellers are following the trend.

The Gulf is, at last, not spewing oil. The tropical storms are at bay. The scorching weather has retreated to merely darn hot. And NYMEX is back at a comfortable spot. That’s a trend we can live with.