Despite bullish technical factors, natural gas futures slipped lower Wednesday as traders considered the possibility that the EIA will report a third straight, record-setting weekly storage injection on Thursday morning.

Thanks to losses in the overnight Access trading session, the July futures contract gapped lower at the opening bell. A combination of local profit-taking and commercial selling sent prices lower throughout the morning, but those losses were rescinded in the afternoon by a steady flow end-user buying. July finished at $5.581, down 13.1 cents for the session, but 12 cents above its morning low at $5.46. At 72,806, the estimated volume was an improvement over the low trading volume seen Monday and Tuesday.

Ed Kennedy of Miami-based Commercial Brokerage Corp. was quick to point to changing expectations for Thursday’s storage report as a reason for the early sell-off Wednesday. “Earlier in the week, predictions were centered around a 100-125 Bcf build. Now [Wednesday] people are throwing out crazy numbers…. Injections of 130 or even 140 Bcf,” he said noting that the 125 Bcf reported by the EIA last week was the largest week addition in the nearly 10-year history of storage data. “I don’t know what the maximum possible storage injection is, but anything over 100 Bcf is bearish in my book.”

Citing milder weather last week than the week prior, Citigroup analyst Kyle Cooper calls for an injection of 119-129 Bcf to match last week’s record-setting injection figure. But regardless of whether the injection reaches a new high-water mark, it will certainly exceed the year-ago injection of 81 Bcf as well as the five-year average refill of 80 Bcf. At 1,324 Bcf, working gas in storage is 718 Bcf less than the same time last year and 446 Bcf less than the five-year average.

Looking ahead, market watchers realize that the string of large injections may continue. Cloud cover, rain and relatively mild temperatures in large markets such as New York City, Washington DC, Atlanta and Houston this week have some suggesting that next week’s storage report could be another whopper. “Overall, national temperatures are very moderate and this week’s temperatures do represent very close to the maximum projected injections by the historical regression models,” Cooper said in a note to clients Wednesday.

Kennedy agreed that storage injections will continue be strong. “Looking at the weather forecasts, I wouldn’t be surprised to see a string of triple-digit injections into the first part of July. However, how much lower prices will go is the real question and not one that’s easily answered. We have yet to see the funds in on the sell side even though we have traded below the 40-day moving average for several days now.”

Add to that the existence of utility and industrial buying, which Kennedy blamed for the bounce back from Wednesday’s low of $5.46, and the price outlook really gets hazy. “[Utilities and industrial buyers] were scale-down buyers below the $5.50 level,” he said, noting that producer selling on the upside and utility buying on the downside could keep the market range bound for a period.

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