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Futures Bulls Start Their Engines on Scant 31 Bcf Build

Natural gas futures bulls received the spark they were looking for Thursday after the Energy Information Administration (EIA) reported that only 31 Bcf was injected into underground storage for the week ending April 22. Because most industry estimates heading into the report were for an injection of about 40 Bcf, traders responded by pushing June natural gas futures to a close of $4.571, up 16.3 cents from Wednesday's regular session close.

In the minutes leading up to the 10:30 a.m. EDT report, June futures, in their first regular session action as the prompt-month contract, had pushed higher from the low $4.40s to reach $4.470. In the minute following the fresh data, the contract jumped up to $4.559. After notching the day's high of $4.599, June futures inched lower to close.

"We think a lot of what we're seeing is short-covering, which was sparked in part by the smallish storage injection and some technical considerations," said Ed Kennedy, a broker with Hencorp Futures in Miami. "We've got limited downside here. No one is going to put a three in front of this price anytime soon. Nuclear generation is way off for this time of year, even considering maintenance. We've also got some coal-fired generation down for maintenance. Gas demand may be a little bit more than people were expecting, and I think that might have been reflected in the storage report."

The broker said he believes war in the natural gas futures market is currently unfolding. "Somebody is heavily defending this $4.60 area, but on the other side, it looks like whoever is covering shorts -- and our guess is it is probably the funds -- are looking for volume. The last time we were up at $4.60 there were approximately 600 lots offered at various one-tick increments. Those were grabbed and someone immediately threw another 500 in, so there is quite a tug-o-war going on here. They are building up the volume on the sell-side again, so it'll be interesting to see what the short-coverers are going to do next."

Looking at resistance points, Kennedy said $4.625 could offer some defense, but major resistance is expected to come in at $4.850. "If we eclipse $4.85, that would signal to me a heck of a turnaround," he told NGI. "There is serious resistance up there from the end of January."

In the days leading up to the report, Bentek Energy was on the record for a 40 Bcf injection, and a Reuters survey of 27 industry players produced a build range of 28 Bcf to 88 Bcf with an average expectation of a 41 Bcf addition. However, Tim Evans of Citi Futures Perspective estimated the actual storage injection exactly.

Calling the 31 Bcf injection "bullish vs. consensus," Evans said he expects more of the same in the weeks to come. "The 31 Bcf in net injections for last week was less than the consensus expectation, although just a match with our own model," he said. "In our view, the data was just inline with where we thought it would be given recent flows and nuclear plant outages. Our forecast for the next few weeks will continue to feature near-average injections."

However, the week's 31 Bcf injection was anything but average. The number paled in comparison to both last year's date-adjusted build of 82 Bcf for the week and the five-year average build of 65 Bcf.

As of April 22, working gas in storage stood at 1,685 Bcf, according to EIA estimates. Stocks are now 215 Bcf less than last year at this time and 11 Bcf below the five-year average of 1,696 Bcf. For the week, the East Region and Producing Region injected 14 Bcf and 13 Bcf, respectively, while the West Region chipped in 4 Bcf.

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