Unsure of Emily’s direction on Wednesday, traders pushed August natural gas futures lower at the opening bell before allowing another run back into $8.00 territory in the afternoon. Ultimately the contract ended up settling at $7.900, up 1.5 cents from Tuesday’s close.

Part of the reason for the choppy day had to do with conflicting signals within the market. While the waning threat to the Gulf of Mexico from Tropical Storm Emily helped the bearish case, expectations for a smaller than normal natural gas storage injection kept the bulls interested.

“I had some producers come in this morning and sell near the highs in both natural gas and crude. I think that up at these levels, people may be considering locking in if they have been waiting,” said a Washington, DC-based broker. “I also saw some very small end-user business come in on the dips as well. People had good reason not to do a whole lot with the natural gas storage number coming out Thursday.”

As of 5 p.m. AST, the National Hurricane Center reported that Tropical Storm Emily was located about 125 miles south of Barbados and about 135 miles east-southeast of Grenada, moving west at 18 mph with 60 mph winds. A turn to the west-northwest and strengthening was expected in the next 24 hours.

“The supportive factors of Emily seem to be disappearing,” the broker added. “In addition to taking a more southern course, there is also speculation that there might not be enough warm water to really churn it up power-wise.”

As for the aftermath following Hurricane Dennis, the broker said it is pretty much nonexistent. “I think the most ridiculous story of the year goes to news about damage to the Thunder Horse platform,” she said. “We are very worried about a platform that is losing 100% of its zero production.”

Some suggest that the key focus of traders should be on the dwindling inventory surplus. Looking towards the natural gas storage report to be released Thursday morning by the Energy Information Administration (EIA), the broker said she keeps hearing there is going to be a sub par injection again. “I’m hearing an injection of 84 to 94 Bcf, which would support the bullish case,” she said.

Looking to the report for the week ended July 8, the number reported by the Energy Information Administration Thursday morning will be compared to last year’s 108 Bcf injection and the five-year average build of 98 Bcf.

“While this market is currently digesting a plethora of bullish items, we still view the ongoing accelerated decline in the supply surplus as the primary background consideration that will tend to keep values supported at a $7.00 handle, possibly through the rest of the summer,” said Jim Ritterbusch of Ritterbusch and Associates. He said he had shifted back to a bullish trading posture in view of the market’s independent show of strength during the last couple of days. “[Wednesday’s] new contract highs in August futures favor further strength as the week proceeds,” he predicted.

The ICAP-Nymex storage options auction on Wednesday revealed a consensus forecast of a 85.4 Bcf injection.

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