Sparked by a massive price drop in December crude, November natural gas futures dropped below $8 for the second time in three days to hit a low of $7.50 as of 2:20 p.m. (EDT). The November contract expired Wednesday at $7.626, down 77.6 cents.

Egged on by bearish inventory reports, December crude hit a low of $52.10/bbl on the day before settling at $52.46, down $2.71 from Tuesday’s close.

The natural gas drop came in stark contrast to Tuesday’s action when November futures soared higher on speculation that Thursday morning might see a significantly lower natural gas storage injection than anticipated. The prompt month on Tuesday posted a 51.2-cent jump to settle at $8.402 (see Daily GPI, Oct. 27).

Both the natural gas and the crude markets responded to the Energy Information Administration’s (EIA) petroleum stocks report, which revealed that crude inventories went up by 4 million barrels last week to 283.4 million barrels. The build far outpaced analysts’ expectations, which were centered around 2.1 million barrels. November heating oil dropped a whopping 7.26 cents on the session to close at $1.4955, despite the EIA report revealing that distillate fuels fell by a greater-than-expected 2.4 million barrels last week.

“The crude build was certainly a good build, but heating oil drew much more than I was expected,” said Steve Blair, of Rafferty Technical Research in New York. “I am not sure that the reports overall were bearish. However, the markets have been so overblown to the upside, moves get greatly exaggerated.”

In addition to the liquid reports, Blair said he would not be surprised at all if a lot of the losses Wednesday were fund liquidation of length, not only in the petroleum complex, but also in natural gas.

Blair also noted that even on the downside, the spreads between the expiring prompt month and the remainder of the winter strip increased. Taking over as the prompt month, the December contract settled Wednesday at $8.775, down 58.8 cents, while January-March settled lower on the day by 39.5 cents to 46.5 cents.

“I do think that a lot of this move is technically driven,” he said. “We had a huge technical move to the upside once we broke out a few days ago, and I think we are seeing a very technical move back to the downside. Looking at December gas, the low Wednesday of $8.74 comes very close to our major support number in the high $8.60s. I wouldn’t be surprised if we get some additional downside in the markets, but there is an equal chance that we could bounce off of this level.”

On the natural gas storage situation, Blair said he didn’t have a real good feel for the potential number this week. The injection will be compared to last year’s 55 Bcf build and the 37 Bcf five-year average injection. Most market watchers appear to be looking for a build within the 29-50 Bcf range, with some looking for an injection as small as 17 Bcf. The EIA’s natural gas storage report for the week ended Oct. 22 will be released at its normal 10:30 a.m. (EDT) time on Thursday.

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