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Futures Retreat as Bulls Are Pummeled by Stout EIA Storage Data

Expiring June natural gas futures closed lower Thursday as market bulls were hit by a government inventory report showing a build in inventories above what they were looking for. At the close June had settled 5.3 cents lower at $4.326 and July futures were down 6.3 cents to $4.360. July crude oil fell $1.09 to $100.23/bbl.

The 10:30 a.m. EDT release of inventory data by the Energy Information Administration showed that for the week ended May 20 gas in underground storage grew by 105 Bcf, well ahead of market expectations closer to the mid-90 Bcf area.

Market reaction was swift. The July contract posted its low for the day at $4.232 immediately after the figure was released. By 10:45 EDT July was trading at $4.307, down 11.6 cents on the day.

Last year at this time 100 Bcf was injected into storage, and the five-year average stood at 95 Bcf. Houston-based IAF Advisors had predicted a build of 101 Bcf, and Ritterbusch and Associates expected a gain of 92 Bcf. Industry consultant Bentek Energy was just 2 Bcf shy at 103 Bcf.

Bentek correctly predicted that the Producing Region injections would increase while the East and West would stay flat. It also said most of the risk to its forecast would be to the upside. "The majority of the change in the sample (11 Bcf) came from the Producing Region, due to a sharp week-on-week drop in local cooling demand. The East and West samples are nearly flat to the previous week," the firm said in its weekly report.

Degree day data indicated greater-than-normal heating load offset by lower-than-expected cooling requirements and on balance suggested a build near normal levels. The National Weather Service reported that for the week ended May 21 in New England, the Mid-Atlantic and Midwest from Ohio to Wisconsin heating degree days were 170, or 19 more than normal. Cooling degree days tallied just one, or 19 fewer than normal.

Market technicians were looking for the market to break lower through previously identified targets. "I was looking today to see if we could get a breakdown and the market did break lower, but we held key support at $4.15 and rallied and held resistance at $4.37," said Brian LaRose of United-ICAP. "If we can clear $4.37, I think there is a good shot at testing the $4.60 area; however, if we can't seem to get above resistance and instead break below key support at $4.15, I think there is a chance for a run at $4 for next week.

"For the moment we are stuck in the middle of nowhere...the wave count actually favors the bulls at the moment, but I am not going to be excited about any upside potential unless I can see $4.37 broken. I want to be patient and make sure $4.37 is decisively broken, a close higher, not just an intraday move, before committing to a bullish call."

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