November natural gas gained in lackluster trading Wednesday as traders were surprised at the move given the big storage injection figure expected Thursday. At the close November was up 3.3 cents to $3.586 and December had added 2.5 cents to $3.813. November crude oil tumbled $2.23 to $86.11/bbl.

“I thought the market held up well today [Wednesday] with the [injection] number coming out tomorrow,” said a New York floor trader.

“We’ll see if the market can get back to below $3.50, but on a squeeze it could get up to $3.75. We’ll just sit back and see what the number brings.”

Technical analysts see the market as having made a break below major support last week, and suggest Wednesday’s action, although positive, hints that prices may still work lower. “We broke down through the $3.60-3.61 area last week and we had thought the market might test major support at $3.27, but we got into the $3.40s and then bounced again,” said Steve Blair, analyst with Rafferty Technical Group in New York.

“Support currently is around the $3.50 to $3.53 area , which we tested Wednesday morning at $3.536 and then bounced from there. At $3.586 we are in a very interesting area. The $3.60-3.61 area became a pivot point and the fact that we got above it [Wednesday], but couldn’t close above it may be setting the tone [weaker] for [Thursday]. If we had been able to close above $3.60, then the next resistance is up at $3.80.

“$3.61 was a major number and the fact we traded above it [$ 3.635] but closed below it still makes it formidable resistance.”

Blair sees a mix of fundamental and technical factors coming to a head with the release of Energy Information Administration (EIA) storage figures. “What’s going to be interesting Thursday is that we are going to get another big injection; I’m hearing 110 to 112 Bcf.

“If the market had stayed down Wednesday, I would have thought it had anticipated the large build. There’s a small battle brewing between those who are watching the storage number and those who are watching the forecast cold that is supposed to hit the East in the next 6-10 or 8-14 days.

“Based on storage I think the trend in the market is lower. Unless we get extremely cold in some of the areas that use natural gas for heating or industrial load picks up or we get a heat wave and [electrical] generation picks up, the market has a more negative connotation than it does positive connotation.

“I would think if we get a big number [Thursday], the market is going to come off pretty hard,” he added.

Estimates for the 10:30 a.m. EDT EIA report fall well into triple digits. A Reuters survey of 26 analysts showed a range of 104 Bcf to 131 Bcf with an average 110 Bcf. IAF Advisors in Houston expects a build of 106 Bcf. Industry consultant Bentek Energy also predicts an increase of 106 Bcf.

Bentek cautioned that the 106 Bcf injection estimate may have risk as being too low. “Larger-than-forecasted builds can be reported in the East and Producing regions as demand has decreased across the U.S. and storage has been absorbing the extra supply in the market.”

Weak cash prices have also set the stage for greater injections. “Additionally, storage stocks in all three regions remain below last year’s levels, which combined with weak cash prices create incentives for storage injections. Henry Hub cash prices have been below the Nymex November forward prices during the entire storage week.”

Market observers saw Tuesday’s 13.5-cent plunge by the November contract as crossing familiar territory. “The natural gas market has been at prices like these in previous years. The area between $3.35 and $3.85 has been well traversed in years gone by. There is good support below the market and good resistance overhead,” said Peter Beutel, publisher of Daily Oil Hedger.

“Because of the support and resistance so close at hand, we have to expect movement to be somewhat quiet. With temperatures unlikely to be especially hot or cold, we have to expect prices to stay reasonably near existing levels. If we do get sudden or unexpected movement, it is more likely to be on the downside.”

Analysts are projecting another triple-digit build in this week’s inventory report, Tim Evans of Citi Futures Perspective is expecting a build of 131 Bcf, nearly 40 Bcf more than a year ago and over 70 Bcf more than the five-year average. However, if National Weather Service (NWS) forecasts for heating load are correct, the following week could be nearly as large.

For the week ending Oct. 22 the NWS anticipates that New England will see 74 heating degree days (HDD), 39 fewer than normal, and the Mid-Atlantic will have 71 HDD, or 27 fewer than the norm. The Midwest from Ohio to Wisconsin is forecast to have 114 HDD, or 10 more than the norm.

Although Beutel sees the market in familiar territory having found support, other analysts suggest that the market has room to wiggle on the downside. “[We] peg $3.495 as the last line of defense for the bulls. Fail to carve out a bottom from this level and fresh lows would be anticipated,” said Brian LaRose, market technician with United-ICAP. “How low can natgas go in this case? Between here and $3.267-3.200-3.193-3.124 we see only one possible candidate for support, $3.373. Note: last October natgas marched lower until the November contract expired. Last October’s low: $3.212,” he said in a post-close report Tuesday to clients.

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