Front-month natural gas futures plunged to a new low for the downtrend Thursday following news that a whopping 93 Bcf was injected into underground storage for the week ending Oct. 15. The late-season build nearly doubled the five-year average injection for the week and more than quadrupled the addition recorded for the similar week last year.

Heading into the 10:30 a.m. EDT report, November natural gas futures had dropped about a nickel from Wednesday's close to trade at $3.483. However, in the minutes following the fresh storage news, the prompt-month contract dropped to $3.379 before reaching a new 13-month low of $3.346 early in the afternoon. Futures ended up closing the regular session at $3.368, down 17.1 cents from Wednesday's finish.

Most industry estimates had been for an injection in the high 80s Bcf to the mid 90s Bcf. A Reuters survey of 28 industry analysts produced a median build prediction of 89 Bcf. The real bearish news is the comparison with historical figures. The 93 Bcf injection quadrupled last year's 23 Bcf addition for the week and was much larger than the five-year average build of 54 Bcf.

As of Oct. 15, working gas in storage stood at 3,683 Bcf, according to Energy Information Administration estimates. The sizeable injection chopped down the year-on-year deficit to 48 Bcf and expanded the year-on-five-year average surplus to 286 Bcf. For the week the East and Producing regions injected 51 Bcf and 37 Bcf, respectively, while the West Region chipped in 5 Bcf.

After making repeated new lows over the last week, many in the industry are wondering just how low the market can go, especially as winter -- and the resulting heating load -- begins to come into focus.

Tom Saal, senior vice president at Hencorp Futures LC in Miami, said that while the storage report was bearish, "it is not the real story here." He added that the more interesting fact is that the funds are still very short natural gas.

"When I'm looking at this market that keeps making new lows, I look for who is selling. The Commodity Futures Trading Commission's (CFTC) Commitments of Traders reports continue to show that speculators are the ones doing the selling," Saal told NGI. "I think they'll continue to sell it until they are proven wrong, so I think we'll continue to grind lower here for the time being. The market just doesn't have a rally in it. In order for a turnaround to succeed, we'll need a fundamental situation that will cause speculators to buy back their short positions."

Saal noted that the only thing currently stopping the funds from continuing to sell is the amount of capital they can acquire to put into the contracts. "The funds are approaching their all-time record net-short position, which according to the CFTC was 205,155 positions on April 20 of this year. Currently, they are at 175,241 short positions. There is obviously a little bit of room for them to add shorts, but there should be some apprehension from them to hold these positions going into the winter. That said, some of these speculators use mathematical algorithms that may not incorporate weather."

Saal and his colleague Ed Kennedy will be taking time off from gas futures trading next month to once again host their popular two-day gas hedging seminar: "Where's the Market Going? And What Can You Do About It?" At the seminar, the brokers will draw on their 20-plus years of trading experience to explain how they go about evaluating the natural gas futures market. The seminar will be held at the Magnolia Hotel in Houston Nov. 11-12. Visit http://seminars.gasmart.com for details.

The broker added that it is important for traders to use all of the tools at their disposal. Looking at Market Profile, Saal said from the beginning of this month the tool showed a market trending lower and produced certain targets. In one of his daily Natural Gas Trader's Outlooks from early October, Saal said the monthly breakdown target at 150% range extension would be $3.385. "That is what we were looking at late last week when we sent the report out," he said. "If we break that on a closing basis the next level is $3.285. On Market Profile, rarely do you get beyond 100%, so this market might reflect a rubber band being stretched pretty far out. It could be coming to a snapping point."

Commenting on the winter weather outlooks released Thursday by the National Oceanic and Atmospheric Administration and AccuWeather.com (see related story), Saal said it doesn't look like it is going to be as intense of a winter as last year. "Now, it is one thing to predict the weather and another thing for it to actually show up," he said. "If this market proves to be from Missouri -- the Show Me State -- it may actually want to see the cold weather occur before a move is made."

Leading up to the seminar, Tom and Ed are making available a unique natural gas futures market perspective that can be delivered to your inbox each morning. Sign up at http://seminars.gasmart.com/hedging10/signup.html to receive a complimentary two-week free trial to Hencorp Futures' Natural Gas Trader's Outlook.

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