In a typical case of "buy the rumor, sell the fact," August natural gas futures pushed higher in early Thursday morning trade in anticipation of a bullish storage injection for the week ending July 16. However, once the news broke of a 51 Bcf injection, front-month values came off a bit. While the August contract went on to close the session 13 cents higher at $4.643, some market watchers were surprised the rally wasn't larger considering the bullish injection, extended summer heat and a tropical depression bearing down on the Gulf of Mexico.

Leading up to the 10:30 a.m. EDT Energy Information Administration (EIA) report, August futures ran up to $4.679. As the fresh storage data hit the street, the prompt-month contract knee-jerked to a high of $4.719 before dropping a few minutes later to $4.575.

Citi Futures Perspective analyst Tim Evans said that while the industry had basically pegged last week's injection, the 51 Bcf build might add commentary on the weeks to come. "The 51 Bcf build in U.S. natural gas storage for last week was basically on expectations, but was still supportive compared with the five-year average of 64 Bcf for the date," he said. "This also tends to affirm supportive guidance for below average injections in the next two reports. There's certainly not a bearish aspect to this, unless it simply isn't bullish enough to wedge prices higher."

Going into the report, Evans said he expected a 48 Bcf injection, while a Reuters survey of 28 industry players produced a 39 Bcf to 67 Bcf injection range with an average build expectation of 53 Bcf. Bentek Energy's flow model aligned with Evans prediction of a 48 Bcf injection. The actual 51 Bcf build was 1 Bcf lower than the lowest injection reported last year during the months of July and August.

In addition to being much smaller than the five-year average build, Thursday's 51 Bcf injection report was also well below last year's date-adjusted 69 Bcf injection for the corresponding week.

According to EIA, working gas in storage stood at 2,891 Bcf as of July 16. Stocks are now 52 Bcf less than last year at this time and 261 Bcf above the five-year average of 2,630 Bcf. For the week the East Region injected 41 Bcf while the Producing and West regions chipped in 6 Bcf and 4 Bcf, respectively.

"I was a little surprised with the market action Thursday," said Steve Blair, a broker with Rafferty Technical Research in New York. "We find out that this wave in the tropics is likely going to be a storm in the Gulf, we had a storage injection in the lower end of the expectation range and we continue to have oppressive heat throughout much of the East, but futures end up climbing six cents, then falling by 12 cents following the report.

"I guess traders are waiting to learn more about the storm before they make their play, but it still surprises me that we did not see more of a rally. If this string of bullish fundamentals can't spark prices, I'm not sure what can. Maybe the market is trying to tell us if it wasn't for all of these bullish fundamentals, prices would be much lower. I'm not sure."

Some traders are waiting for tropical activity to show its hand and prompt higher prices. "Last year, during July in New York City, we had one day with a high above 90 degrees. Now we are into our second or third 'heat wave,' which is defined as three or more days of 90-degree-plus readings," said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. "Temperatures are averaging more than five degrees hotter than usual so far. That might not sound like that many, but it is.

"What this market has lacked, on the bullish side, has been a steady diet of storm scares. It has been forecast as a very active season, and it will need to start behaving that way if it is going to spur the short-covering needed to push price quotes higher."

On Thursday the wave between the Bahamas and Cuba, heading in a west-northwestward fashion, strengthened into a tropical depression aimed for the Gulf of Mexico. According to AccuWeather.com Senior Meteorologist Kristina Pydynowski, the track of the system should allow the center of circulation to pass through the Florida Straits, the waterway between Florida and Cuba, on Friday before entering the Gulf of Mexico over the weekend.

"It appears the system has developed a low-level circulation, indicative of a tropical depression at this time and has been so dubbed," Pydynowski said Thursday. "Tropical Depression 3 could soon be a tropical storm."

Meteorologists at the forecasting service expect the system to track toward the northern Gulf Coast and the oil spill area this weekend.

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