Natural gas futures dropped to new one-month lows Thursday morning on the news that a record-setting 125 Bcf was injected into underground storage last week. After gapping lower at the opening bell, the July contract shuffled down for the first 30 minutes of trading. When the Energy Information Administration released its weekly storage update at 10:30 a.m. EDT, the market easily dropped below $6.00. Buyers stepped in when prices reached the low $5.80s, but that did little to dissuade the sellers Thursday afternoon who were successful in pushing the market lower just before the closing bell. July finished at $5.606, down 60.7 cents or nearly 10% for the session.

According to EIA estimates, storage increased 125 Bcf to 1,324 Bcf during the week ending June 6. Stocks were 718 Bcf less than the same time last year and 446 Bcf below the five-year average of 1,770 Bcf. In the East Region, stocks were 251 Bcf below the five-year average following net injections of 68 Bcf. Stocks in the Producing Region were 191 Bcf below the five-year average of 577 Bcf after a net injection of 42 Bcf. Stocks in the West Region were 5 Bcf below the five-year average after a net addition of 15 Bcf.

During the same week last year, the market injected 88 Bcf and the five-year average refill was calculated at 87 Bcf. Market expectations were calling for a 100-110 Bcf build. Traders agree that the price slide that began early this week was set in motion by last Thursday’ storage injection — a whopping 114 Bcf figure. At 125 Bcf and 114 Bcf, the last two injection figures are the first and second largest refills in the nearly 10-year history of EIA data.

Needless to say, storage — which began the refill season at record lows — is catching up quickly. At 623 Bcf on April 11 of this year, stocks were 598 Bcf or nearly 50% less than the five-year average of 1,221 Bcf. Since then, however, the storage situation has improved, especially over the last five weeks, during which time injections have averaged 99 Bcf.

If that pace of injections continues, storage would reach the target 3,000 Bcf threshold by the beginning of October, with a month still to go in the injection season. Stated another way, the market only needs to average 80 Bcf a week from now through Nov. 1 to reach 3,000 Bcf.

Kyle Cooper of Citigroup was quick to note that it is highly unlikely that the industry will keep the 99 Bcf a week pace through the heat of summer, but he expects at least another two weeks of triple digit injections. “Clearly the market is reacting to the price level, via both higher supply and lower demand.” Cooper also said that increased LNG and propane imports are helping to boost supply, especially to the degree that propane is being left in the gas stream.

“This [injection] continues to reaffirm our long held belief in the incredibly increasing importance of the [Residential and Commercial] sector,” Cooper wrote in a note to clients Thursday evening. Looking back, Cooper contends that the low absolute storage level is a direct result of the bullishness of the temperatures (cold in winter; warm in summer) that the eastern consuming region has experienced over the last year. In fact, Cooper calculates that 12 out of the last 13 months (March 03 excepted) have seen bullish temperatures.

“Yes, the natural gas balance over the last year has been tight. However, we believe a great deal of that tightness was directly related to temperature. If temperature patterns remain bullish, higher prices are justified,” he continued. On the other side of the coin, Cooper notes that the first wave of heavy air-conditioning load will be supplied by alternate fuels, allowing natural gas to continue to flow into storage. Should that occur, further price weakness is possible. “Mother nature controls the market now more than ever,” he explained.

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