The Energy Information Administration (EIA) reported Thursday morning that 77 Bcf was injected into underground storage for the week ended Oct. 21, a number that was seen by the market as bearish when compared to expectations and to historical data for the week. As a result, the expiring November natural gas contract plunged lower, before inching back up to expire at $13.832, still good for a 20.8-cent decline on the day.

In anticipation of a bearish build, traders had already worked November natural gas futures down more than 40 cents to $13.60 in the overnight Access trading session and pre-report trading. In the minutes immediately following the 10:30 a.m. EDT report, the expiring prompt month dropped 25 additional cents to trade at $13.35.

However, after the knee-jerk reaction was accounted for, November natural gas traded in the $13.50 to $13.85 range until almost 2 p.m. EDT, when it dropped down to $13.30, before climbing back up to close. Taking over as front month in Thursday’s after-hours Access session, December natural gas slumped on Thursday, but unlike November, the December contract didn’t give as much back at the end. After trading within a $13.44 to $13.90 range, December natural gas settled Thursday’s regular session at $13.684, down 37.6 cents.

“What typically happens on expiration day is the expiring prompt month gets more volatile,” said Tim Evans, an analyst with IFR Energy Services. “The nearby month gets thinner and thinner as it gets closer to the final bell, so it doesn’t take that many contracts at the very end to swing it 20 cents without a problem.”

He noted that the important thing to watch now is how the December contract reacts. “Now with November off of the board, we will get to see how much of the price strength earlier in the week really was expiration-related and whether that time pressure made a difference. With the storage numbers we are seeing, I don’t see much reason for prices to hang around up here.

The lofty storage injections over the past few weeks is proving the point that significantly elevated natural gas price levels will bring natural gas supply — and a lot of it — out of the woodwork.

Commercial Brokerage Corp.’s Tom Saal, who has tracked both the natural gas cash and futures markets over his 20-year career, is a firm believer in the cyclical nature of prices. “The best cure for higher prices is…. higher prices,” he quipped.

Acknowledging that the storage fill came in well on the high side of expectations, Advest Inc.’s Jay Levine said the news could be seen as yet another fundamental sign that the nation’s current natural gas supply “is A-OK.” However, he noted that A-OK in this market could stand for “Acting Otherwise Krazy.”

The 77 Bcf injection dwarfed last year’s 31 Bcf build and the five-year average injection of 45 Bcf. Evans said the report was surprising. “Looking at how much injections have exceeded the five-year averages in the past, this was the most bearish report since April 8, 2005,” he said. “We beat the five year average by 32 Bcf this report…and that is in spite of having more than 5 Bcf/d shut-in in the Gulf of Mexico from the hurricanes.”

While most of the market had been looking for a bearish number, the 77 Bcf injection outpaced all expectations. A Bloomberg survey of 15 analysts was calling for an average injection of 66 Bcf, while the Wednesday afternoon ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, predicted a 67 Bcf injection for the week.

Working gas in storage now stands at 3,139 Bcf, according to EIA estimates. The accepted full storage level entering winter is 3,200 Bcf. Stocks are 106 Bcf less than last year at this time and 85 Bcf above the five-year average of 3,054 Bcf.

The East region led the charge last week, injecting 49 Bcf into underground stores, while the West and Producing regions chipped in 19 Bcf and 9 Bcf, respectively.

Looking at the natural gas futures complex, there are signs that a softening economy may erode support for natural gas demand and portend weaker prices. Thursday morning the Commerce Department announced that durable good orders fell 2.1% in September and economists had been expecting a drop of only 1.1%. The August figure of 3.5% was revised upward to 3.8%, the Department reported. Reduced orders for aircraft, computers, and communications equipment, were cited as the main components of the decline.

A Bloomberg report noted that Hurricanes Katrina and Rita drove up energy costs last month and may have chipped away at corporate confidence and made companies circumspect about demand. However, the decrease in orders may be short-lived as companies look to replenish inventories and rebuilding efforts along the Gulf Coast spur demand, it said.

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