While Thursday’s reported 58 Bcf natural gas storage injection for the week ended Sept. 5 came nowhere close to the 102 Bcf and 90 Bcf builds of the previous two weeks, it came in slightly above some industry projections, which were set based on significant shut-ins from the Gulf of Mexico related to Hurricane Gustav. Following the bearish build, October natural gas futures spiraled lower.

Just prior to the 10:35 a.m. EDT report from the Energy Information Administration (EIA), front-month futures were trading at $7.525. In the minutes that immediately followed, the contract dropped to trade at $7.273. When all was said and done, October futures closed Thursday’s regular session at $7.248, down 14.5 cents from Wednesday’s finish.

“The 58 Bcf net injection was slightly above some estimates, but was still in neutral territory relative to expectations,” said Tim Evans, an analyst with Citi Futures Perspective. “It is still supportive relative to the 78 Bcf five-year average. The price impact is probably already over though, and the market will go right back to watching Ike.”

Despite the market’s recent bearish sentiment, the bulls do have a ray of hope, industry experts note. If Gulf of Mexico shut-ins linger (see related story), bulls could find their spot.

“The industry appears to be pretty comfortable with the current amount of gas in storage,” said a New York trader. “If the shut-ins from hurricanes Gustav and Ike are good for at least two or three more weeks of reduced additions to inventories, then we’ll have to see if that would be enough to start changing peoples’ minds. Any concerns on gas levels heading into the heating season would be enough to boost futures values.”

Even with lowered GOM production and assuming three weeks of shut-in gas for Gustav and Ike, a healthy supply at the end of the injection season should not be a problem. Assuming minimal injections of 50 Bcf/week for three weeks, the industry should be looking at roughly 3,000 Bcf in storage with another six weeks remaining. Injections of 68 Bcf weekly for the remaining six weeks would provide a healthy start to the heating season of 3,405 Bcf.

In spite of the prospects for ample natural gas at the onset of the heating season, risk managers are cautious about going short and suggest an options strategy. “Put options are the only way I would go short this market,” said Ed Kennedy of Commercial Brokerage, Miami.

“In fact I would probably use put option spreads since the implied volatility of the options is so high due to the hurricane season. I would buy something close to the market, and sell something out of the money, but I don’t think there is a lot of downside to this market. There is just too much buying,” he said.

Heading into the storage report it was obvious to the industry that the weeks of 102 Bcf and 90 Bcf injections were a thing of the past. Golden, CO-based Bentek Energy said its flow model indicated an injection of 46 Bcf, while a Reuters survey produced an average build expectation of 54 Bcf.

While the actual 58 Bcf build came in well below the five-year average injection of 78 Bcf, it was just larger than last year’s 56 Bcf build for the similar week.

As of Sept. 5, working gas in storage stood at 2,905 Bcf, according to EIA estimates. Stocks are 146 Bcf less than last year at this time and 82 Bcf above the five-year average of 2,823 Bcf. The East region injected 47 Bcf and the West region added 9 Bcf, but the Producing region, which some had expected to record a draw, managed to chip in 2 Bcf.

“This week’s EIA report demonstrates that the natural gas market is significantly looser than it was at this time last year,” said Lehman Brothers analyst Daniel Guertin. “Last year’s weekly release occurred on Sept. 7, with a reported net injection of 64 Bcf during a week that recorded 66 cooling degree days as the U.S. exited an extended stretch of hot weather. Temperatures during the current reference week of Sept. 5, 2008 were similar, with 63 cooling degree days. Yet the storage build still came within 6 Bcf of the Sept. 7, 2007 storage build despite widespread supply disruptions in the Gulf region. The long Labor Day weekend did help to curb demand for the week, but this does not distort the comparison as the year-ago storage build also incorporated the holiday effect.”

Heading into a weekend of uncertainty due to Ike’s expected southeast Texas coastal landfall late Friday night or Saturday morning, energy trading exchanges are looking to accommodate nervous traders.

CME Group has announced that it will extend trading hours for energy futures and options contracts on the CME Globex and ClearPort electronic trading and clearing platforms. CME Globex and ClearPort trading sessions for energy products only will begin on Sunday at 10 a.m. EDT with a 9:30 a.m. pre-open on CME Globex. All trades will be for the Monday, Sept. 15 trade date.

“After extensive discussions with the energy trading community, including clearing member firms and independent software vendors, CME Group is modifying its Sunday trading hours to allow customers access to the markets that may be impacted by Hurricane Ike,” said Bryan Durkin, CME Group COO. “Collectively, we recognize the need for the global energy markets to manage their risk during this potentially volatile time and felt this was in the best interest to serve their needs.”

Rival IntercontinentalExchange (ICE) issued a reminder Thursday that all ICE over the counter (OTC) markets, including the Henry Hub natural gas swap, are open around-the-clock throughout the weekend, per the exchange’s standard seven-day per week operating schedule. ICE OTC energy markets will be available beginning at midnight on Friday continuously through 6:30 p.m. EDT on Monday. The markets will re-open on Monday at 7:30 p.m. EDT, per the standard operating hours.

ICE’s crude oil futures markets on ICE Futures Europe will also maintain standard operating hours, re-opening the Sunday afternoon at 6 p.m. EDT. ICE said it will expand its standard after-hours and weekend support.

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