While Thursday’s news of a 52 Bcf addition to natural gas storage inventories for the week ending Aug. 14 was bullish compared to most expectations and historical comparisons for the week, prompt-month natural gas futures, in response to the report, dipped below $3 for the first time in seven years before closing out the day at $2.945, down 17.4 cents from Wednesday’s finish.

Just prior to the 10:30 a.m. EDT release, September natural gas was trading at $3.074, but immediately following the fresh storage data the contract dropped to $2.993. Futures put in a new low of $2.930 in late afternoon trade.

The move marked the first breach of $3 by a front-month contract since Aug. 15, 2002 when the September 2002 contract reached a low of $2.877. Despite the milestone, traders were quick to point out that the downside is obviously limited.

“Thursday’s drop below the psychological $3 price level is certainly newsworthy, but at the end of the day you have to wonder just how much further can prices really dip,” said a New York trader. “The bearish fundamentals are all in and accounted for, which leaves the bullish potential of hurricanes and the approaching heating season wide open. We saw last week just how fast the storm season can begin. Four storm systems materialized overnight like someone had flipped a light switch. Looking at this market, we might have 30 to 50 cents open to the downside, while the upside threat can be measured in dollars.”

Tim Evans of Citi Futures Perspective, who had been looking for a 67 Bcf build, deemed the 52 Bcf addition as bullish. “The 52 Bcf net injection for last week was below expectations and well below our own forecast,” he said. “However, we also note that the market looks heavy, probing the $3 mark despite the bullish news. This suggests the net injection was low, but not low enough to spark short covering.”

Heading into the report, most industry projections were for a build of 55 to 59 Bcf. Bentek Energy’s flow model indicated an injection of 53 Bcf. The actual 52 Bcf build came in just below the five-year average of 56 Bcf, but well short of last year’s 82 Bcf addition for the week.

As of Aug. 14 working gas in storage stood at 3,204 Bcf, according to Energy Information Administration estimates. Stocks are 562 Bcf higher than last year at this time and 513 Bcf above the five-year average of 2,691 Bcf. The East region injected 46 Bcf while the West and Producing regions chipped in 5 Bcf and 1 Bcf, respectively.

The New York trader noted that the “bullishness of the number” is somewhat in question. “At this point of the season when you already have 3.2 Tcf underground, cavern space is beginning to get tight in certain regions of the country. As a result, a smaller than expected build might not mean that gas supply is drying up. It could just mean there was nowhere to put the stuff.”

With futures prices hovering near historic lows, analysts are still reluctant to call a bottom to the market. Jim Ritterbusch of Ritterbusch and Associates said he “remains reluctant to pick a bottom” to this market. Although he is looking for an eventual test of the $4 level, he said “it now appears that such an advance is out of reach for the September contract.”

Citing the fact that the natural gas futures market failed to react to the hurricane buzz in the Atlantic over the last week, another analyst said the threat of storms just doesn’t carry the same weight in the market as it used to, especially an oversupplied market. Edward V. Garlach of Washington Research Group said Thursday that bulls shouldn’t pin their hopes on a hurricane-inspired price rally given the abundance of gas in storage and the diminished relevance of Gulf of Mexico gas supplies (see related story).

©Copyright 2009Intelligence 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.