After initially moving higher on the news that a smaller-than-expected 34 Bcf was added to storage last week, the natural gas futures market tumbled lower Thursday on the realization that refills will continue for at least another week.

December sprinted higher at 10:30 a.m. EST, but was unable to fill in the chart gap up to $5.04. Sellers were quick to take advantage of the opportunity, and punished the market lower for the rest of the session. The prompt month closed at $4.658, down 23.9 cents for the session and 36.2 cents off its 10:30 a.m. EST high. Although December has notched lows between $4.63 and $4.65 in four of the last six trading sessions, its $4.658 closing price Thursday is the contract’s lowest in more than 10 months.

According to the Energy Information Administration, 34 Bcf was added to underground storage facilities last week, bringing total inventories to 3,155 Bcf. Although the report could be construed as bearish because it exceeded the five-year average injection of 20 Bcf and contrasted sharply against the year ago withdrawal of 27 Bcf, it was deemed price-supportive by most because it was below the common 37-52 Bcf range of market expectations. In fact, only one market watcher informally polled by NGI anticipated a figure less than the 34 Bcf injection reported by the EIA.

“Based purely on the impact the increased heating degree days last week had on the residential and commercial sectors, you would have expected injections to be down about 3 Bcf/day (or 21 Bcf/week) from the prior week,” said energy consultant Stephen Smith. While that straight arithmetic would have produced a 34 Bcf injection estimate (55 Bcf minus 21 Bcf), Smith actual prediction of 28 Bcf took into account other variables such as the increased number of cooling degree days last week.

Looking ahead, Smith’s early prediction for the next storage report is for another refill in the mid 30s Bcf. “Versus historical figures that show a net withdrawal of 28 Bcf for that report, another 34 Bcf injection will result in a 62 Bcf swing. All of a sudden, you are dealing with nearly a 200 Bcf surplus to historical figures,” added Smith who uses the 1994-98 time frame for his five-year average because he feels it represents a better baseline for comparison.

According to the EIA, the surplus to last year stands at 10 Bcf and the surplus to the five-year average (1998-2002) is now 95 Bcf. With the market having reached the end of the injection season according to the calendar, analysts were busy pointing out just where 2003 stacks up in history.

“Only 1998 end-of-October inventories exceed current inventory levels,” said Kyle Cooper of Citigroup in Houston. “However, with initial expectations that next week will also experience a build, the [3,172 Bcf] 2002 high (reached in the second to last week of October) may be breached.”

Ron Barone of UBS was even more emphatic on the pace of storage injections in what is now traditionally a withdrawal month. “We note that — depending on actual temperature trends over the next few weeks — this year may make a run for the 3,254 Bcf record (notched in the last week of November 2001).”

Having broken down below potential buying seen in the $4.70-78 area, December futures will now have to rely on last-chance support at $4.63 and $4.58-59, says Craig Coberly of GSC Energy in Atlanta. Should that level hold, he will remain bullish in the intermediate- to long-term, calling for a retracement of the February-November decline. A 50% retracement would put prices at $7.10. Trading above $5.00 would be good confirming evidence that move has begun, he said.

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