September natural gas futures knee-jerked lower in Thursday morning trading following the news that an on-target 37 Bcf was injected into underground storage for the week ending Aug. 6. The prompt-month contract recorded a low of $4.264 before closing out the day at $4.296, down 3 cents from Wednesday's close.

With no bullish inventory surprise and the dissipation of Tropical Depression 5 late Wednesday afternoon, the market's fundamentals took on a little more of a bearish tone. "After the tropical depression broke down on Wednesday, the bulls really needed a small injection to boost their cause," said a New York trader. "When that didn't come in, it certainly became more difficult to build on Wednesday's gains. All is not lost, however, as we are currently entering the peak season for storm development in the tropics. That, along with the expanding deficit to last year's storage level, are the only things propping us up in my opinion."

After trading as high as $4.363 in the hour leading up to the 10:30 a.m. EDT Energy Information Administration (EIA) report, the September contract reached the day's low of $4.264 immediately after the storage number went public.

Citi Futures Perspective analyst Tim Evans, who had been looking for a 30 Bcf addition, deemed the injection "slightly bearish," but was quick to point out the differences to last year's record high injection season. "The 37 Bcf build was a bit over the consensus expectation and higher than we had thought it might be," he said. "This may reflect some modest weakening of the underlying fundamentals, or possibly just the geographic distribution of last week's heat.

"The build was still modestly constructive compared with the 39 Bcf five-year average and still bullish compared with the 63 Bcf build a year ago. In this regard the market continues to move away from its 2009 storage track."

Going into the report, Bentek Energy's flow model was projecting a 36 Bcf injection, while a survey of 19 analysts by Dow Jones revealed an average expectation of a 34 Bcf injection.

As of Aug. 6, working gas in storage stood at 2,985 Bcf, according to EIA estimates. Stocks are now 158 Bcf less than last year at this time, but still 219 Bcf above the five-year average of 2,766 Bcf. For the week the East Region injected 43 Bcf and the West Region chipped in 3 Bcf, while the Producing Region withdrew 9 Bcf.

The actual 37 Bcf was 1 Bcf shy of the 38 Bcf prediction of Credit Suisse analyst Teri Viswanath, who also noted that the gap to last year's storage level is widening. "Taking a closer look at storage on a regional level, the East Consuming region is currently -91 Bcf (-5.59%) below last year, the West Consuming is +35 Bcf (+7.88%) above last year and the Producing region is -102 Bcf (-9.51%) below last year," she said in a research note.

Some analysts are awaiting a more timely opportunity to enter the market. "We feel that [Wednesday's] drop into new low territory to within about 10 cents of major long-term support could eventually prove to be an approximate interim price bottom depending upon [Thursday's] reaction to the storage stats," said Jim Ritterbusch of Ritterbusch and Associates. He added that he was presently "sidelined" and was "advising long-term or investment-type participants to await further declines in nearby futures back to around the $4.25 mark to begin establishing longs in the winter contracts on a 'scale-down' basis."

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