After failing to test support in the mid $2.90s following a lower open Wednesday morning, natural gas futures contracts worked their way modestly higher in the afternoon as traders elected to look past another robust storage build to focus on hot weather and technical concerns. The September contract led the advance, rising 6.5 cents to close at $3.036. Estimated volume echoed the market’s tentative nature as only 60,979 contracts changed hands.

According to the American Gas Association, 80 Bcf was added to underground storage facilities during the week ending Aug. 3, bringing working gas levels to 69% full at 2,283 Bcf. Last year at this time 65 Bcf was added to supplies and the five-year average injection is 64 Bcf. Storage now stands 298 Bcf above year-ago levels and 198 Bcf above the five-year average. The wide range of expectations heading into the report were for a 70-90 Bcf injection, with people favoring a number in the 70s over a number in the 80s.

For Kyle Cooper of Salomon Smith Barney, however, the number was perfectly within his 75-85 Bcf range of expectations. “As long as there exists this excess supply, the storage numbers will continue to surpass last year’s figures,” he said.

In a knee jerk reaction to the storage figures, traders dropped the market lower at 2 p.m. EDT. However, like other trips below the $3.00 level, the September contract did not stay for long. All told, the September contract has dipped beneath $3.00 in eight sessions over the past two weeks. In five instances the market closed below $3.00 and in three of those instances the market managed to close above $3.00. However, in all instances the market closed within four cents of the $3.00 mark. And not once during this period has the contract remained below $3.00 for an entire trading session. This sort of price activity is giving traders confidence that, at least for now, the futures market may be fairly priced.

Looking ahead, Cooper expects another healthy injection to be released next week, despite the storm-related production losses and the hot weather seen this week. “We saw extremely hot weather two weeks ago and still managed to build 77 Bcf into inventories during that period. Even if you take 5 Bcf off that number for the loss of production plus another 5 Bcf for the heat, you are still in the high 60s (Bcf). I just can’t see anything much lower than that.”

While remaining steadfastly bearish on fundamentals, Cooper admits the market’s price action is constructive. For that reason, he does not rule out a technical short-covering rally in the near-term. In the long-term, however, he believes prices will ultimately head lower.

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