November natural gas rose on heavy volume Thursday in spite of an inventory report that indicated increases not only greater than historical norms but also higher than what analysts expected.

The Energy Information Administration reported an increase of 112 Bcf, well above what the market anticipated, but after an initial drop prices stabilized and eventually closed higher on the day. November rose 4.2 cents to $3.531, and December added 2.3 cents to $3.814. November crude oil sank $1.34 to $84.23/bbl.

“With that kind of number coming out it was a surprise that it dropped 5 cents and then came right back,” said a New York floor trader. “The market just sat here between $3.49 and $3.54 for most of the day, and there was probably a little short-covering, but I thought with that number we would be trading $3.40 Thursday.

“I think if we get below $3.46, we could trade down to $3.30, but it held so we’ll have to see what happens the next few days. I see price resistance at $3.58 to $3.60 with the market trading between $3.45 and $3.60 for the next few days.”

If forecasts for gas usage are correct, next week is likely to deliver a hefty build report as well. The National Weather Service predicts that for the week ending Friday (Oct. 15) New England should have only 35 heating degree days (HDD), or 62 fewer than its norm. The Mid-Atlantic is anticipated to see only 20 HDD, or 61 fewer than its norm, and the Midwest from Ohio to Wisconsin is expected have 35 HDD, or 50 fewer than its norm.

Near-term weather forecasts are more supportive. Commodity Weather Group in its six- to 10-day forecast shows a ridge of below-normal temperatures extending from the south Atlantic coast northwest through Iowa and Wisconsin. Thursday’s forecast “is similar to cooler than [Wednesday’s] for the Midwest, East and South as more cool troughing cuts into these areas,” said Matt Rogers, president of the firm. “The intensity of the cooling is not severe, but it is more than sufficient to boost year-on-year heating demand for the second half of October in the Midwest and East. Otherwise, warm weather is most commonly found over the next two weeks in the interior West and Southwest.”

Prior to the release of the inventory data analysts weren’t sure whether the expected large storage addition was fully reflected in the market. “The market is essentially bracing for the fundamentally bearish news…” said Tim Evans, analyst with Citi Futures Perspective in New York. Evans calculated a build of 106 Bcf for the week ended Oct. 7, but for the week of Oct. 14 his estimate balloons to 125 Bcf.

“Overall, we continue to see near-term risk to the downside but are looking for a seasonal bottom with nearby futures heading for $4.50 once winter arrives,” Evans said.

The 112 Bcf build was way above last year’s 90 Bcf injection and the five-year average of a 72 Bcf build. For the most part, observers were expecting a triple-digit build. A Reuters poll of 26 industry players showed an average 102 Bcf with a range of 83-112 Bcf, and IAF Advisors of Houston expected an increase of 106 Bcf. Industry consultant Bentek Energy, utilizing its North American flow model, looked for an increase of 109 Bcf.

The 112 Bcf was an October record. “This will become the first three-digit injection that occurs during October when traditionally storage facilities start to report smaller injections in preparation for the winter season. The previous record high injection in October was 93 Bcf, reported last year for the week ended Oct. 10,” Bentek said.

Bentek considered its lofty 109 Bcf injection estimate to have equal risk to the upside and downside. “Two of the largest facilities in the East Region, Dominion and Columbia Gas-TCO, reported significant losses week-on-week, which could lead to a smaller-than-forecasted build. On the other hand, the injections for the region remain strong across many other facilities in the region, and with inventories still below historical levels, the injection could materialize into a larger build than currently forecasted.”

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