Natural gas futures traders might as well sleep in on Wednesday mornings. Or maybe they already are…. Wednesdays have taken on a sort of split personality, in which a barren desert suddenly gives way to a deluge of trading activity when fresh storage data is released at 2 p.m (EDT). That was the case yesterday as futures opened unchanged only to drift lazily sideways for 4.5 hours. Then, when a larger-than-expected storage figure was released, the market tumbled 13 cents in just five minutes. July rebounded modestly in the final 65 minutes of trading to close at $3.801, down 9.1 cents on the day, but up 7.1 cents from its low for the session.

According to the American Gas Association, 117 Bcf was added to underground storage facilities for the week ending June 1, bringing storage levels to 42% full at 1,398 Bcf. Versus all comparisons, the 117 Bcf injection was stunningly bearish. It surpassed expectations (85-115 Bcf), last year’s figure (78 Bcf), and the five-year average refill (91 Bcf). In fact, in only two other instances — May 1994 (120 Bcf) and three weeks ago (118 Bcf) — has more gas been put into the ground in a week. The market has experienced 100+ Bcf injections in five of the last six weeks, adding a total of 650 Bcf to inventories.

For Thomas Driscoll of Lehman Brothers, the large injection figure cannot be explained purely by mild weather last week. Instead, he points to either a supply surplus or a demand deficit that accounted for a net 2 to 3 Bcf/d of excess gas in the market. Heading into the report, Driscoll had predicted a 90 Bcf figure based primarily on the fact that last week was 45% colder than normal and 52.6% colder than last year.

Ed Kennedy of Miami-based Pioneer Futures said it wasn’t the dime that was taken out of the market upon release of the report that was surprising, but rather the market’s inability to continue lower to test major support at $3.67. “We saw specs and locals cover shorts late in the session today. It was kinda like the bears just lost their way. You have to be very suspect of a market that should go lower and doesn’t. What we may very well have here is a market that is adequately priced for what we know right now.”

Accordingly, Kennedy believes that the storage situation may already be priced into the market and the next price cue will come from temperature and load forecasts as the market enters the peak cooling season. Everyone is keeping a close eye on both private and governmental weather forecasts right now. This is a weather-driven market and demand goes up exponentially in the state of Texas as prices rise to 92 degrees and above, he said. The reason for this, he continued, is that as temperatures move into the middle 90s, older and less efficient electric generating plants are pressed into service, resulting in increased gas demand.

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