December natural gas rose Thursday as market bears had to endure the indignity of a government inventory report sharply lower than what was expected. In its 10:30 a.m. EST report the Energy Information Administration (EIA) said inventories rose by just 19 Bcf for the week ended Nov. 11, about 7 Bcf less than what traders were looking for. At the close December had risen 6.6 cents to $3.410 and January had gained 6.3 cents to $3.546. December crude oil plunged $3.77 to $98.82/bbl.

The 19 Bcf injection versus expectations caught a number of observers off guard. “This has created a high tiff in our neck of the woods,” said John Sodergreen, publisher of Energy Metro Desk Express, a publication that focuses on the weekly storage figures and which conducts a poll each week. This week it sampled a hefty 35 analysts and came up with an average 27 Bcf build with a range of 20-35 Bcf.

“This is crazy. I have been scrambling around trying to rationalize this…One fellow said, ‘I think we are humbled again by the obvious hole in visibility in the whole demand scrape picture.’

“The producing side is still kind of opaque and that was the problem again, the producing side,” said Sodergreen.

Bentek forecast an injection in the Producing Region of 17 Bcf and the actual figure was just 11 Bcf.

One answer is that producers may just be shutting in wells, waiting for the market to turn around. “The gas has to go somewhere; the heating degree days were the same as last week, almost exactly, production was down slightly week on week, 1 Bcf I heard. Rig counts have been falling, but nothing that would suggest a 7 Bcf dip,” he said.

Others were also perplexed. “It’s not clear why the build was so much lower than the prior week’s 37 Bcf injection that had been higher than expected. Timing issues between the two weeks may have played a role, or there may have been some pipeline operational issues,” said Tim Evans of Citi Futures Perspective. “The small draw was also a bit at odds with cash market behavior, which has seen Henry Hub (and a range of other locations) trade at a discount to the futures, often a marker for larger builds.”

Technical traders don’t see anything in Thursday’s rise that would change their bearish outlook. “Spot futures would have to reach $3.85 to $3.90 in order for me to take any interest in the long side,” said an Oklahoma City broker who utilizes a moving average trading model. “[Thursday] December traded as low as $3.325 and that is a new contract low.

“From the middle of June there was only one time prices went over the moving average, in the middle of July, and since then the market has been virtually straight down. It has hardly threatened to take out my moving average. Why try to pick a bottom when you can just sell rallies? It looks like that is just going to continue to make money for you.

“I would use $3.85 as a stop loss on a short position. Any 10-cent to 15-cent rally should do [for a short entry] and perform pretty well.”

The 19 Bcf injection set a new record. Last year’s record season-ending inventory stood at 3.837 Tcf and last week’s 3,831 Bcf inventory was raised to a new record of 3,850 Bcf. Modest demand relative to last year and the five-year average clearly prompted the injection. Last year 1 Bcf was withdrawn and the five-year average was a 10 Bcf build.

Other market pundits were also expecting a higher build. Analysts at IAF Advisors in Houston predicted a 24 Bcf increase, while a Reuters survey of 23 market observers revealed an average 26 Bcf build with a range of 19-35 Bcf. Industry consultant Bentek Energy, utilizing its North American flow model, calculated a 25 Bcf gain but cautioned that the risks to its estimate were for higher builds.

In a report Bentek said it “considers the 25 Bcf injection to have slight risk to the upside this week. A mix of storage injections and withdrawals is happening across facilities in the U.S. Demand remains relatively mild, and this could lead into a larger national build from the current forecast. Blue Lake and Dominion System also are supporting injections in the East, while Producing Region injections increased by 3% week on week.” Bentek correctly predicted the 9 Bcf injection in the Eastern Region and the 1 Bcf draw in the West Region.

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