Building on the downward momentum created Thursday with a stout natural gas storage injection and flying in the face of surging crude prices, June natural gas futures on Friday threatened to break below $11 as the contract plunged lower. The prompt-month contract recorded a low of $11.080 before inching higher to close at $11.094, down 30.5 cents from Thursday and 44.3 cents lower than the previous week’s finish.

While natural gas was probing lower price values, June crude was heading in the opposite direction, recording a high of $127.82/bbl before settling at $126.29/bbl, up $2.17 from Thursday’s close.

Addressing the recent volatility in commodity markets, Citi Futures Perspective analyst Tim Evans said that trying to trade the current natural gas and crude futures markets is like “sticking your hand in a blender,” adding that there should be some sort of mental health examination performed before someone is allowed to begin trading.

“I think what we saw Friday was some more follow-through from the Energy Information Administration’s report Thursday of a significant 93 Bcf injection,” he said. “The impression was created that with the Independence Hub off-line, this would be a bull market. However, the storage injection contradicted that notion in a rather emphatic way. Even with the hub off-line, we are not falling short with our storage injections.”

With storage now sitting at a 3 Bcf surplus to the five-year average, Evans in his analysis noted that the last time the industry was at a surplus to the average was when storage was 6 Bcf over on March 28. “Over the last six weeks we really haven’t seen this market tighten or ease to any great extent, but over that time frame the price has gone up about $2 and the Independence Hub has been off-line. While that is not all that has happened, those are the key items over the last six weeks. We’re at least testing the downside now.”

Evans said the highs could already be in unless a real weather event comes down the pike. “If we were to probe higher, we would probably have to work a lot harder to get there. I think the easy gains are behind us here.”

Thursday’s 93 Bcf injection report caught some traders off guard. Many were expecting closer to an 85 Bcf addition to inventories, and as a result prices swooned. June futures dropped 19.9 cents to $11.399 Thursday. It’s not clear, however, if hefty injections will set a trend, and seasoned traders suggest a cautionary approach.

“The continued downtime at the Independence Hub facility, a lack of significant price-induced deterioration in industrial/[electric generation] demand and forecasts for a hot East Coast summer all suggest that the year-over-year storage deficit is more likely to expand than contract during the next few months,” said Jim Ritterbusch of Ritterbusch and Associates. In his view the shortfall in storage should keep the summer-fall portion of the price curve well supported even though present weather is a nonissue.

Present weather may not be a factor, but in its recent June, July, August forecast the National Weather Service (NWS) forecast above-normal temperatures for key energy markets. In a long-term forecast released Thursday the NWS predicted that New England and the Mid-Atlantic as well as the western U.S. from eastern California to the Continental Divide would endure above-normal temperatures. Portions of the Mississippi and Ohio valleys and into the Southeast including northern Florida were predicted to experience below-normal temperatures.

Others said the only thing they see as unusual with Thursday’s 93 Bcf injection is the price level that is associated. Walter Zimmerman of United Energy said, “We are right in the middle of the 10-year average, so if you were given a chart of the inventories and asked to predict the price, I daresay that no one would come up with even $10 based on historical numbers.”

Zimmerman added that “if you dig a little deeper there are indications of gas coming onstream in the third and fourth quarters, but the market ignores all that until the upmove is finished, until the wave count is completed. Suddenly all that news about production increases becomes relevant.”

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.