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Supportive EIA Figures Push July to Healthy Gains

July natural gas futures scored double-digit gains Thursday as traders factored in new government storage data that was well below expectations. At the close of trading July had gained a stout 16.5 cents to $4.794 and August was higher by 15.4 cents to $4.821. July crude oil rose 11 cents to $100.40/bbl.

The 10:30 a.m. EDT report on natural gas inventories by the Energy Information Administration showed that for the week ended May 27 stocks increased by 83 Bcf to 2,107 Bcf, well below expectations of a build closer to the mid 90s Bcf range. The market advanced so far so fast that it left plenty of room on the price charts to actually retreat before further gains would be needed for the technical outlook to remain consistent with a bull market.

"For the bulls this was a positive move. A technical advance was already in place and this [report] just forced the issue," said a New York floor trader.

Prior to the EIA report, a Reuters poll of 21 analysts showed a sample average 95 Bcf with a range of 85 to 110 Bcf. Houston-based IAF Advisors expected a build of 88 Bcf, and Ritterbusch and Associates predicted that inventories increased by 95 Bcf. Industry consultant Bentek Energy, utilizing its North American flow model, predicted 90 Bcf. Last year 90 Bcf was injected, and the five-year average stands at 99 Bcf.

Bentek reported that it expected most of the decrease from the prior week's 105 Bcf injection to be the result of smaller builds in the Producing Region. "Bentek's estimate dropped week-on-week by 13 Bcf. The majority of the change in the sample came from the Producing Region as temperatures warmed up following cooling temperatures during the previous storage week," the firm said in a report. "The milder temperatures pushed demand down and therefore increased injections in the region. The East remained relatively flat with a sample drop of only 5% while injections in the West increased 27%."

The relatively thin build of 83 Bcf was consistent with the additional cooling requirements observed during the week. For the week ended May 28, the National Weather Service reported above-normal accumulations of cooling degree days (CDD) in portions of the South and Southwest as well as in the Northeast. Supply bears had been arguing that plentiful production, especially from recent shale drilling in formations such as the Marcellus and Haynesville, would result in a robust seasonal refill, but Thursday's report forces a reevaluation of that argument.

For the week ended May 28 the South Atlantic from Maryland to Florida recorded 80 CDD, 30 more than normal; and the West South Central region, including Texas, Oklahoma, Arkansas and Louisiana, tallied 101 CDD, or 31 more than its seasonal norm. New England warmed under 15 CDD, or 12 more than normal; the Mid-Atlantic endured 26 CDD, or 17 more than its norm; and the Midwest saw its normal accumulation of 17 CDD.

With gains from last week and early this week still fresh on traders' minds, analysts saw the market as having made at least a technical transition off a bottom.

"Technically, prices look like they have formed an important long-term bottom, and they look like they want to continue moving higher longer term," said Peter Beutel, president of Connecticut-based Cameron Hanover. "Near term, though, they ran up against the upper, blue Bollinger Band on the daily charts [Wednesday], and they are overbought. Those factors make it quite likely that we will see more of a correction before moving higher. After any correction, traders are going to want to see this week's underground storage figures."

Traders will get a chance Friday to gain further insight into the health of the economy with the 8:30 a.m. EDT release of employment data by the Labor Department. Expectations are for a rise in non-farm payrolls of 170,000, somewhat off the pace of April's 244,000 gain but a healthy improvement nonetheless. The unemployment rate is expected to ease to 8.9%, down from April's 9.0%.

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