After winding lower from the mid-$3.80s in early Thursday trading, the November natural gas futures contract took an even deeper plunge following news from the Energy Information Administration (EIA) that 85 Bcf was injected into underground storage for the week ending Oct. 1. In the minutes before the regular trading session closed, the prompt-month contract tested the $3.610 low for the year recorded on Aug. 27.

Heading into the 10:30 a.m. EDT report, the November contract had worked down to $3.793, but in the minutes that immediately followed the prompt-month contract slumped below $3.700. Just before the regular trading session's conclusion at 2:30 p.m. EDT, futures matched the year's low of $3.610 before inching higher to close at $3.617, down 24.8 cents from Wednesday's close.

Going into the report, it appeared that most industry experts were expecting an injection in the high 70s Bcf or low 80s Bcf, so the actual injection wasn't that far off. A Reuters survey of 25 industry players produced an injection range of 71 Bcf to 86 Bcf with an average build expectation of 78 Bcf. Bentek Energy had been expecting an 81 Bcf injection for the week.

Citi Futures Perspective analyst Tim Evans hit the nail on the head with his 85 Bcf build prediction, but he noted that the event was still "bearish" because the number was larger than most of the industry had been expecting.

"While the 85 Bcf build was precisely on our own estimate -- and therefore neutral relative to last week's weather in our view -- the build was bearish relative to consensus expectations for a 78 Bcf gain and above the 67 Bcf five-year average and so the immediate market reaction has been bearish," he said. "We'll have to wait and see whether the market proves resilient or a more significant downside break is triggered."

In addition to being larger than most expectations as well as the five-year average, the 85 Bcf build also topped last year's date-adjusted 68 Bcf addition for the week.

As of Oct. 1, working gas in storage stood at 3,499 Bcf, according to EIA estimates. The 85 Bcf injection shrunk the year-on-year deficit to 149 Bcf and expanded the year-on-five-year average surplus to 220 Bcf. For the week the East and Producing regions injected 53 Bcf and 32 Bcf, respectively, while the West Region showed no change.

As hefty as inventories are, analysts see the natural gas market in the near term as unwilling to probe lower as it tests major technical support at $3.610.

According to Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm, "It also acknowledges some of the growing discomfort felt by energy analysts and traders with a market model in which oil prices are rising and gas prices are falling. At some point -- and we have been waiting for this for most of the last two years -- there has to be room for natural gas prices to move higher for the same reasons that oil prices are." Beutel sees a contradiction in the two markets. "From our perspective, it just makes no sense for investors to see oil as a natural store of value at the same time that it is a major industrial commodity -- without seeing in natural gas at least some of the same recommending virtues."

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