corrected 9/13/02

Natural gas bent but didn’t break Thursday morning as traders who rotated out of long positions following a modestly bearish storage figure were seen buying back contracts later in the session. At $3.329, the October contract finished up 7.9 cents for the session and 13.9 cents off its new low for the week. Estimated volume was moderate to heavy at 89,862.

According to the Energy Information Administration, working gas in storage increased by 74 Bcf to 2,855 Bcf as of Friday Sept. 6. Stocks were 182 Bcf higher than last year at this time and 313 Bcf above the five-year average of 2,542 Bcf. In the East Region, stocks were 96 Bcf above the five-year average following net injections of 52 Bcf. Stocks in the Producing Region were 152 Bcf above the five-year average of 671 Bcf after a net injection of 13 Bcf. Stocks in the West Region were 66 Bcf above the five-year average after a net addition of 9 Bcf.

Versus last year’s 97 Bcf injection, the 74 Bcf refill was bullish. However, versus last week’s 65 Bcf tally and against the range of expectations centered on a 65-75 Bcf build, the 74 Bcf injection was a tad bearish. Looking ahead to next week, Thomas Driscoll of Lehman Brothers in New York estimates a 75 Bcf injection. Comparatively, the market added 91 Bcf during the same period last year.

However, storage numbers were not the only bearish influence the natural gas market chose to ignore Thursday. Also of potentially negative impact was the crude oil market, which moved lower despite the president’s warning to the U.N. General Assembly that action against Iraq will be unavoidable unless Saddam Hussein agrees to disarm his weapons of mass destruction. October crude fell 92 cents to close at $28.85.

For Tim Evans of IFR Pegasus in New York, the pull-back in crude oil gives credence to the assertion by some analysts that there is as much as $3-$5 war premium. “Somewhere along the way, president Bush’s address must have disappointed the most rabid bulls in the crude oil market, who must have been expecting the president to announce a decision that unilateral action was imminent or already underway.”

However, on balance, Evans feels the war premium is minimal and oil prices will be more affected by production cuts planned by OPEC this year. “If we’re right then prices should be able to rebound, particularly if OPEC fails to deliver a significant quota hike.”

For Jay Levine of New Hampshire-based Advest Inc., the natural gas market rests at a pivotal level. A sustained break below support at $3.21-24 could mean a test down to the $3.03-06 area. On the upside, a continuation of the late rally seen Thursday might go unchecked until the low $3.40s. He would look to short the market on a move to $3.47.

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