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Bulls Unfazed by Triple-Digit Storage Injection

The natural gas industry received news Thursday morning of a stout 105 Bcf build in storage inventories for the week ended May 30. However, despite the significant injection, July natural gas futures bulls refused to take a breather as the prompt-month contract recorded a regular session high of $12.539 before closing out the day at $12.519, up 14 cents from Wednesday's finish.

After recording a $12.545 high on Globex early Thursday morning, the July contract trailed lower to notch $12.405 just ahead of the Energy Information Administration's (EIA) 10:30 a.m. EDT report. The contract put in a $12.380 tick in the minutes that immediately followed but was back trading at $12.466 by 10:40 a.m.

"The 105 Bcf net injection was slightly above the median expectation, but not...enough to change anyone's mind about price direction, said Tim Evans, an analyst with Citi Futures Perspective in New York. "The build was above the 97 Bcf five-year average and does reduce the year-on-five-year average deficit to just 1 Bcf, but that's a neutral result, too. The data fails to confirm the bullish sentiment but may well fail to change it."

Some market experts noted that the supply situation is fine and that refilling storage shouldn't be a problem. "It is mind-boggling that people think there is going to be trouble refilling storage," said Ed Kennedy of Commercial Brokerage Corp. in Miami. "We are right on the five-year average inventory number and there is no trouble with supply, so what is the big deal?"

Looking at the numbers, Kennedy noted that the United States is losing liquefied natural gas (LNG) cargoes because it is an arbitrage market and LNG is going to the highest bidder, which is Asia. However, wet gas production is up, which makes up for the LNG, he said. "There is no supply problem and no problem refilling storage. By the end of the injection season storage will be full -- it always is."

As for why natural gas futures are currently trading at $12.500, Kennedy said there are a few things at work. "First off, the way the market trades now is a little different. It is easier to push around now than it was before. There are periods in the trading day where there is a real lack of liquidity. Second, we may be getting some funds unwinding their short natural gas/long crude trade, so I think we have technical factors out there. I would like to sell natural gas, but other than price, I need a reason to do it."

A Reuters poll of 20 industry observers showed a median estimate of a 103 Bcf build. The poll had a tight range, from 99 to 109 Bcf. The actual 105 Bcf build came in just under last year's 110 Bcf build.

According to the EIA, working gas in storage stood at 1,806 Bcf as of May 30. Stocks are 326 Bcf less than last year at this time and 1 Bcf below the five-year average of 1,807 Bcf. The East region added 60 Bcf for the week while the Producing and West regions added 28 Bcf and 17 Bcf, respectively.

Looking at next week's storage report for the week ended June 6, it might be a little more difficult to post a triple-digit injection if weather data holds up. The National Weather Service (NWS) forecasts for the week ended June 7 a greater than normal accumulation of cooling degree days (CDD) for populous energy markets. The NWS predicts that New England will see 13 CDD, or seven more than normal, and New York, New Jersey and Pennsylvania will endure 23 CDD, or seven more than normal. The industrialized Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin are expected to swelter under 40 CDD, or 16 more than normal.

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