After months of relatively neutral weekly gas storage reports, natural gas futures traders on Thursday got something they could sink their teeth into as the Energy Information Administration (EIA) reported that a bearish 109 Bcf was put into underground storage for the week ended July 2.

As a result, August natural gas futures dropped from their pre-storage release trading level of $6.35 to hit a low on the day of $6.11 at 11:04 a.m. (EDT). The prompt month went on to settle at $6.185, down 18.5 cents on the day. More importantly, the sizeable storage build allowed natural gas futures to break-step with crude futures. August crude futures closed at $40.33/bbl, up $1.25 on the day.

Describing the day’s action as a big storage build that yanked the rug out from under the natural gas futures market, Tim Evans of IFR Energy Services said the 109 Bcf net injection was certainly more than either he or the market consensus was expecting. As a result, the storage report immediately undercut prices in spite of some supportive price action in the petroleum complex.

“The break below support in the $6.27-6.31 span puts August natural gas back on the defensive,” Evans said. “The resulting $6.11 reaction low may hold as minor support, but further erosion would put the $6.025-6.03 lows from June trade at risk. Spot support extends to $5.96, but past that level we see risk of a more dynamic descent to probe longer-term buying at $5.70 and $5.50.”

Evans added that prices would now need to rebound past $6.36 to put the $6.46 high from Tuesday back into play, with a breakout beyond that point needed to put the $6.625 and $6.71 highs back on the agenda. “Having suffered a clear disappointment today, we think natural gas may have to take some time now to regroup and decide what the next move should be,” he said.

Storage levels have continued to climb higher than expected. George Leide of Rafferty Technical Research in New York said he was forecasting a storage injection of 98 Bcf, while Kyle Cooper of Citigroup said he was looking for a build between 93 and 103 Bcf. Evans said that estimates ranged as high as 106 Bcf with a consensus in the 95-100 Bcf range.

The sizeable injection allowed current stocks to climb to a 24 Bcf surplus over the five-year average of 2,023 Bcf. “The erasure of the deficit and the emergence of this surplus has been a dominant, bearish fundamental trend since March and the chief reason why natural gas prices have struggled, in spite of periodic strength in heating oil values and a belief that summer heat and hurricanes have potential to limit injections,” Evans said. “The refill outpaced the 96 Bcf five-year-average injection, even though that average included a 147 Bcf build from last year that was padded by a 36 Bcf one-time adjustment.”

While the 109 Bcf build fell far short of the 147 Bcf build reported during the same week last year, a number of analysts discounted the match-up because last year’s inflated figure included 36 Bcf in accumulated revisions, so the weekly increase was a more modest 111 Bcf.

Working gas in storage now stands at 2,047 Bcf, according to EIA estimates. Stocks are 238 Bcf higher than last year at this time. The East region led the charge with a 66 Bcf injection, while the Producing and West regions contributed 29 Bcf and 14 Bcf, respectively.

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