While many industry experts had been expecting a small injection and some were even calling for a 3 Bcf withdrawal, the 7 Bcf withdrawal reported Thursday morning by the Energy Information Administration (EIA) for the week ended July 21 surprised the market, triggering a jump in natural gas futures prices. However, after notching a $7.250 high in morning trade, August futures stalled — expiring at $7.042, still good for a 15.5-cent gain on the day.

After gapping almost 10 cents higher Thursday morning to open at $6.980, the prompt month was hovering at $6.950 in anticipation of the storage report. Immediately following the bullish 10:30 a.m. EDT report, August natural gas blew through the psychological $7 barrier to hit a high of $7.250 just a few minutes later. The contract put in a $6.900 low for the day before going off of the board. September futures, which took over front-month duties in Thursday’s Access trading session, finished Thursday’s regular session at $7.123, up 14.9 cents.

Leading up to the report, the industry’s expectations for the storage report spanned the widest range of expectations in some time as market participants were unable to successfully gauge the natural gas demand levels for peak electricity generation during the heat wave that covered much of the country last week. Historical benchmarks were also no comparison. During the same week last year, 41 Bcf was injected into storage and the five-year average build for the week was 65 Bcf.

“Because it was expiration for August, you could take the technicals and push them aside,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “As for September and October futures, they may test the downtrend at some point. However, It is supposed to be hot for the next 10 days. While I would normally say that a string of withdrawal reports during July and into August would be unlikely, after this report there is a strong possibility, especially if it gets hotter than it has been.”

Another broker said the key is market psychology more than anything else. “The number was obviously a big surprise,” said a Washington, DC-based broker. He noted that futures immediately jumped 25-30 cents higher from Wednesday’s close, but couldn’t go any higher.

“I think the point here is one report does not change the storage situation in terms of the absolute number,” he said. “The real question is whether this begins to change the psychology. Do people start believing that we can now work through the storage surplus and have a ball game come winter again. If that becomes the trader talk, then the bulls really have control of this thing.

“It is the last trade date, so some people might be cashing out their August. If you had a long in August, you are really happy that you waited until after the report to sell,” the broker said prior to the market’s close Thursday.

He also noted that the storage surplus could continue to erode. “I have always been a believer that you can work through a storage overhang,” he said. “A number of things could happen…we just need the weather. Could it stay hot like this well into September? It is a possibility that is still out there.”

A Reuters survey of 24 industry players had been predicting an average injection of 28 Bcf, although the range of projections was vast — from a withdrawal of 3 Bcf to a build of 48 Bcf. Golden, CO-based Bentek Energy was one of the closest with an estimate of a 3 Bcf withdrawal. The ICAP derivatives auction Wednesday revealed a consensus build expectation of 3.4 Bcf.

As of Friday, working gas in storage stood at 2,756 Bcf, according to EIA estimates. Stocks were still 379 Bcf higher than at the same time last year and 490 Bcf above the five-year average of 2,266 Bcf. The Producing region withdrew 20 Bcf and the West region removed 3 Bcf from underground stores for the week. The East region injected 16 Bcf.

Prior to Thursday trading, Tom Saal of Commercial Brokerage in Miami, in his work with the Market Profile, said he saw the market testing “value areas” within a relatively short time frame. He cited value areas at $7.095 to $7.170 and $7.346 to $7.444 but also notes untested value areas at $6.366 to $6.535 and $5.886 to $6.058.

Market Profile is a form of technical analysis in that the market information derived from it is mechanical and calculated from a firm set of market parameters and definitions. It uses the evolving market as its foundation to ascertain future market direction. Market Profile uses internal market structure to forecast prices and is very much a “present tense” type approach to market forecasting, traders note.

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