Striking lower for the third consecutive day, August natural gas futures on Friday came close to breaking through the psychological $6 mark, reaching a low of $6.07 on the day.

The prompt month settled at $6.141, down 4.4 cents. While producing a loss on the day, trading on Friday could not compare to Thursday, when the August contract dropped 18.5 cents following the EIA’s bearish report of a 109 Bcf storage injection for the week ended July 2.

However, the big news over the last two days of the workweek was the fact that natural gas futures were able to break-step with crude futures. August crude futures closed up significantly on Thursday, but recorded a 37-cent decline on Friday to settle at $39.96.

“It clearly appears that natural gas futures has decoupled from crude over the last two sessions,” a Washington, DC-based broker said. “It will be interesting to see if this holds. The question of whether this independence continues or reconverges is the next thing to look at.”

The broker noted that crude has clearly been artificially inflating gas prices beyond where they probably ought to be. “If the crude keeps the gas price held up long enough until we get some decent warm weather, will gas start trading on its own?” he questioned.

“If we could break the $6.03 level — basis the August contract — the next technical level would be $5.97,” he said. “Below that, the next step would probably be $5.68. More people are on the sideline in the natural gas market than in the heating oil market. High prices have forced people to say, ‘There is no way I can buy at this price so I will just ride it out.’ If we were to get down into the mid-$5 range I think you would see a lot of buying, holding prices up at that level.”

On Thursday, Craig Coberly of GSC Energy said the futures market’s latest downturn confirms the bearish outlook for the intermediate term. “A short-term decline to the $6.00 area is now very likely,” he said. “Significant support resides at $6.00, around $5.80 and $5.40-5.50.”

Touching on the current storage situation, the Washington broker said, “Storage looks decent. Clearly we have had some [sizeable] injections and we will probably get another one this week.”

Storage levels have continued to climb higher than expected. The EIA’s 109 Bcf injection report for the week ended July 2 came in above the industry consensus of 95-100 Bcf. The sizeable injection allowed current stocks to climb to a 24 Bcf surplus over the five-year average of 2,023 Bcf. The refill topped the 96 Bcf five-year-average injection, but fell far short of the 147 Bcf build reported during the same week last year. Analysts discounted the match-up with last year’s number because last year’s inflated figure included 36 Bcf in accumulated revisions, so the weekly increase was a more modest 111 Bcf.

Lehman Brothers’ Thomas Driscoll was calling for a 100 Bcf build. Even though the actual number outpaced his estimate, Driscoll still warned that storage might not be full by the end of October.

“Over the past eight weeks weather-normalized injections have been averaging about 3.9 Bcf/d below last year’s level,” he said. “If this were to continue over the remainder of the refill season, storage would reach only 2,850 Bcf by end of October. For storage to reach our targeted 3,100 Bcf by the end of October, we need to see storage injections average 1.8 Bcf/d less than last year for the remaining 17 weeks. This implies that supply needs to climb and/or the market needs to shed about 2 Bcf/d of demand. This indicates continued strong gas prices over the remainder of the injection season.”

Working gas in storage now stands at 2,047 Bcf, according to EIA estimates. Stocks are 238 Bcf higher than last year at this time. The East region led the charge with a 66 Bcf injection, while the Producing and West regions contributed 29 Bcf and 14 Bcf, respectively.

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