Natural gas futures tumbled lower Thursday in what one trader described as an “orderly price rout.” After vacillating wildly in the 10 minutes after the storage report was released (featuring a 11 Bcf injection), the market paused in the low $4.30s and then proceeded to fall 23.3 cents on the day to $4.156, December’s lowest close in three weeks.

According to the Energy Information Administration, working gas in storage increased 11 Bcf to 3,172 Bcf during the week ending Oct. 25. Stocks were 40 Bcf higher than last year and 189 Bcf above the five-year average of 2,983 Bcf. In the East Region, stocks were 38 Bcf above the five-year average following net injections of 8 Bcf. Stocks in the Producing Region were 96 Bcf above the five-year average of 793 Bcf after a net injection of 2 Bcf. Stocks in the West Region were 56 Bcf above the five-year average after a net addition of 1 Bcf.

Prior to this week’s storage report, expectations had ranged from a 5 Bcf net withdrawal to as much as a 30 Bcf injection. However the common range of expectations was centered on a 10-20 Bcf injection. During the same week last year, 32 Bcf was injected.

At 40 Bcf, the year-on-year surplus has shrunk to almost nothing just as the market prepares to make its seasonal switch from injections to withdrawals. Although it is still early, most preliminary estimates call for a small net withdrawal to be announced next Thursday. Because it will be compared to a 20 Bcf injection from a year ago, a withdrawal of 20 Bcf or more would erase completely the year-on-year surplus.

Putting out what is probably the most bullish early prediction for next week’s storage figure, Thomas Driscoll of Lehman Brothers looks for a 35 Bcf withdrawal to take the market to a 15 Bcf year-on-year deficit. “Recent injection rates imply that we should enter winter with 3,140 Bcf of gas in storage,” he wrote in a note to customers Thursday.

Although the 11 Bcf injection fell short of last year’s comparable figure, it was deemed neutral because it fell within the 10-20 Bcf common range of expectations. Sensing that the market was more susceptible to a move lower from Thursday’s $4.36 opening price, traders used the storage release as an opportunity to sell the market. The 23.3-cent price erosion followed last Thursday’s 12.7-cent retracement by the then-prompt contract for November.

However, just as selling the storage report has been a shrewd play, so has been buying the market late Friday or early Monday. Ten days ago, the November contract spiked to a new 17-month high at $4.42 as traders returned from the weekend to learn of forecasts for below-normal temperatures. Then after dipping down near the $4.00 mark on the heels of the storage report last week, the November contract rebounded abruptly this Monday as traders learned that the cool weather across the country was expected to stick around for a while and even intensify.

For bulls however, the clock is ticking. By virtue of its $4.156 close Thursday, the December contract finished below its 40-day moving average, which stood at $4.21 Thursday. Non-commercial fund selling was seen late in the session as speculative accounts liquidated longs. However, settling below the 40-day for just one session can send false signals. Just last month the November contract was guilty of closing below its 40-day average on Oct. 7. As it turns out, November was able to rebound right back above its 40-day average in the very next session and continued higher to notch its $4.42 high on Oct. 21.

Most traders agree the market will try to duplicate this feat Friday. Accordingly, most market watchers look for an early test of the $4.21-22 area. A substantial push through that area could attract pre-weekend short-covering. Updated weather forecasts Friday also will be key.

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