After dropping a dime in a knee-jerk reaction to slightly bearish storage data (42 Bcf injection) released at 10:30 a.m. EDT, natural gas futures chopped sideways for the rest of the session Thursday as traders groped for fair value in a market that has witnessed a 58-cent trading range since Oct. 1. As it turned out, nothing was settled, with about half the traders, brokers and analysts surveyed by NGI yesterday expecting higher prices Friday and half looking for more weakness. The November contract closed at $3.828, down 9 cents for the session and just above support at $3.795.

According to the Energy Information Administration, there was 3,080 Bcf of working gas in storage on Oct. 4. This represented a net increase of 42 Bcf from the previous week. Stocks were 82 Bcf higher than the same time last year and 254 Bcf above the five year average of 2,826 Bcf. In the East Region, stocks were 73 Bcf above the five year average following net injections of 39 Bcf. Stocks in the Producing Region were 122 Bcf above the five year average of 742 Bcf after a net withdrawal of 3 Bcf. Stocks in the West Region were 58 Bcf above the five year average after a net addition of 6 Bcf.

For most market watchers who were focusing on a 35-45 Bcf draw, the 42 Bcf refill was slightly on the bearish side. However, versus last year’s 73 Bcf injection the addition was supportive. As expected, shut-ins from Hurricane Lili were evidenced in the report. After realizing an average injection of 14 Bcf each week for the past month, the Producing Region withdrew a net 3 Bcf last week.

With slightly more than 1 Bcf/d of Gulf of Mexico production still offline as of Thursday afternoon, next Thursday’s storage report also could feature another net withdrawal in the Producing Region. That will compare bullishly versus the storage report from a year ago, which featured a Producing Region that accounted for 17 Bcf out of a total weekly storage refill of 70 Bcf.

With prices perched precariously at support, consistent with November’s 40-day moving average of $3.795, market watchers are prepared for a break in either direction Friday. Should November prices dip below that level early in the session, sellers could usher the prompt month down to retest last week’s close at $3.739 and last week’s low at $3.67. Should support hold, however, traders could latch on to short- to medium-range weather forecasts of below normal temperatures across the western two-thirds of the country and bid the market up. If this rally develops, it would likely attract short-coving which could boost prices toward the market’s clear upside objective at $4.00.

Pointing to bearish pattern on the daily November bar chart, Tim Evans of IFR Pegasus in New York cautiously favors an extension to the downside Friday. “[Thursday’s] outside-down reversal followed a $3.96 high, a close match with the 50% correction level of the market’s prior drop from $4.25,” he wrote in a note to customers yesterday. “While often a reliable sell signal, we still don’t know if the market will immediately break down through the failed resistance at $3.77 and the $3.67 low from Monday to challenge either the projected support at $3.58-3.60 or the $3.465-48 lows from August 21 to September 3-5 as the more critical longer-term pivot.”

Despite this uncertainty, Evans is banking on a continuation downward and backs that notion with a short position initiated at $3.82 Thursday. If he is wrong, a $3.97 buy stop would limit his risk.

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