September natural gas retreated Thursday following the release of inventory data that was somewhat greater than what the industry was expecting. September lost 7.4 cents to $4.244 and October shed 7.6 cents to $4.257. September crude oil rose 4 cents to $97.44/bbl.

The injection of 43 Bcf left working gas inventories at 2,714 Bcf, which was 201 Bcf less than last year’s 2,915 Bcf and 65 Bcf below the five-year average of 2,779 Bcf. Industry observers suggest that if those deficits continued through the end of the injection season, the case for natural gas building a price “base” would be strengthened.

Traders did get a better handle on available gas for the winter heating season with the release of the data from the Energy Information Administration. The recent hot weather had prompted a wide range in the estimates. The 43 Bcf was greater than a Reuters poll estimating 40 Bcf and shortly after the figure was released spot September futures plunged to their lowest point of the day, $4.200.

“If you look at just [storage], and you are going into the winter, it would reinforce my thoughts that the market is building a base. There would be less gas,” said Mike DeVooght, president of DEVO Capital, a Colorado-based trading and risk management firm.

He cautioned that he didn’t think that “the storage numbers mean a whole lot. There isn’t a lot of urgency to put it into storage since the price curve is so flat. It doesn’t pay a whole lot to do so. Theoretically [there is] all this gas that is being produced out there and demand may be up just a little bit because of how low prices are, but more gas should be going into storage.

“Are producers generating as much supply as advertised? If the market is that much oversupplied and drilling continues, that makes sub $4 gas a possibility. Where is all this gas going? Could it be shut in? If that’s the case, it tells me producers can’t move the gas or the break-even price is too high to service the asset. The real issue is the macro[economic] issue. To me that trumps all other factors. There is not a lot to be excited about the economy. I think what is happening is forced austerity, which over time is what has to happen.”

DeVooght thinks natural gas prices are close to the point where he will begin implementing his strategy of capturing option premium from a range-bound market.

“If the market drops below $4.15, it will be just like a few weeks ago when we sold $4 put options. When prices went up to $4.60 we covered those. Wednesday we covered our short calls since we had about 80% of what we could have made so we booked them. Below $4.15 we will sell puts again,” he said.

Thursday’s injection report fell between last year and the five-year average injection pace. Last year at this time a thin 31 Bcf was injected and the five-year average stands at 49 Bcf. Peter Beutel, publisher of Daily Oil Hedger, had estimated a low build of 20 Bcf, but IAF Advisors of Houston was looking for 37 Bcf.

A slightly more expansive survey by Scudder Publishing’s Energy Metro Desk Express showed an average 38 Bcf from a sample of 35 analysts. John Sodergreen, publisher, said he was not as confident in this week’s report as last week. “Last week’s report and forecaster box scores were right on the money. We actually had eight forecasters who nailed the report spot on at 60 Bcf. No kiddin’. This week, we’re not so sure. For one thing, the spread between the three categories we cover — surveys, bank analysts and independent analysts — is over 3 Bcf wide. And if history serves, when the range is over 3 Bcf, we’re usually in for a surprise of some sort. We reckon the risk this week is to the downside of the consensus. It was way hot last week.”

In its 8 a.m. EDT Thursday report the National Hurricane Center (NHC) characterized Tropical Storm Don as “small,” and by 5 p.m. EDT Thursday it was moving briskly to the northwest at 16 mph with sustained winds of just 45 mph. NHC said to expect landfall on the Texas coast late Friday or early Saturday.

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