In addition to the shock surrounding the latest on the unraveling of market-maker Enron, natural gas traders and market watchers were rocked again Wednesday by another in a string of bearish reports by the American Gas Association. The group announced that 12 Bcf was injected into underground storage facilities for the week ending Nov. 23, bringing gas levels to a record 3,144 Bcf. In a fitting twist, December natural gas futures spiraled lower on the news, surpassing previous lows reached early in 1999, just weeks after storage levels had crested a new peak (at that time) of 3,127 Bcf.

After rallying to a promising $2.82 high early in the session, the December contract finished at $2.316, down 29 cents on the session and a just over a dollar below where it was when it became the prompt contract at Nymex a month ago. The final settlement price of a contract is computed by averaging the trades done during the last 30 minutes of trading, which on Wednesday was from 2:15 to 2:45 p.m. EST, 15 minutes later than what has been the norm since the Sept. 11 attacks. Although a Nymex spokesperson would not comment on the matter other than to say it was because of the coincidence of the expiry and the AGA report, the decision to push back the close is believed to have been an effort to remove the volatility-ridden 15 minutes following the storage release from the 30-minute final settlement determination period. On all other days, the calculation of settlements is based on the last 2 minutes of trading.

Yesterday’s bearish storage news followed a barrage of price-negative news last week. On Wednesday the AGA announced a 10 Bcf upward revision to the storage data for the week ending Nov. 9, which when summed with the actual 7 Bcf refill from that report and last week’s 15 Bcf injection equaled a net addition of 32 Bcf in underground storage facilities over the two-week period ending Nov. 16. Add in the 12 Bcf injection for last week and you have a 44 Bcf net build over a three-week period that usually sees withdrawals. For example, the market withdrew 246 Bcf during that same period in 2000 and the five-year average drawdown is 124 Bcf. As a result, the surpluses versus last year (642 Bcf) and the five-year average (391 Bcf) have ballooned to new highs.

Looking ahead, even the most stalwart bull will be hard-pressed to imagine a price-constructive scenario heading forward. In addition to storage, the latest weather outlooks will continue to weigh on prices. According to the latest six- to 10-day forecast released yesterday by the National Weather Service, the entire eastern half of the country, save the southern tip of Florida — which will be warm anyway — is expected to see above normal temperatures into next week. Meanwhile, below normal readings are confined to the West Coast.

A quick look at the January chart shows that while the contract failed to make new all-time lows like December, January did manage to move below recent pull-backs at $2.73 and $2.755. That is negative in-and-of itself and could lead to a retest of continuation chart targets at Tuesday’s high of $2.62 ahead of December’s Nov. 16 low at $2.50.

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