While the natural gas industry had braced itself for a bearish storage withdrawal for the week ended March 20, it was not prepared to hear of the year’s first injection when the Energy Information Administration’s (EIA) natural gas storage report was released Thursday morning. After the EIA reported that 3 Bcf was added to underground inventories, natural gas futures dropped more than 30 cents in Thursday morning trade and ended up closing the regular session at $3.947, down 38.2 cents from Wednesday’s finish.

Just prior to the 10:30 a.m. EDT report, April natural gas futures were trading at $4.282. In the minutes that immediately followed, the front-month contract sank to $3.967. From there the contract crept lower, recording the day’s low of $3.889 around 1:40 p.m. EDT before inching higher to close.

The 3 Bcf build compared with a 43 Bcf draw for last year’s similar week and a five-year average pull of 49 Bcf. The first injection of the season came four weeks early compared to last year. The first build of 2008 occurred for the week ending April 11, when 27 Bcf was put underground.

“It was actually nice to see us get a bearish report and have the market respond accordingly because as we know that doesn’t always happen,” said Steve Blair, a broker with Rafferty Technical Research in New York. “I’m a little surprised futures values didn’t fall a little further given the fact we saw an injection. I had a few people talking a small injection, but most folks still expected a small draw. We have one more report left in the traditional heating season. If we get a flat report next week, we’re looking at exiting the heating season with a year-on-year overhang of around 402 Bcf.”

Going into the report, it appeared that most industry watchers were betting on a draw in the high single-digit billion cubic feet. Citi Futures Perspective’s Tim Evans was looking for a 10 Bcf draw, while a Reuters survey of 23 industry players produced a range of expectations from a 20 Bcf draw to a 2 Bcf build with an average expectation of a 9 Bcf draw. Evergreen, CO-based Bentek Energy said its flow model indicated a withdrawal of 13 Bcf.

According to the EIA, working gas in storage stood at 1,654 Bcf as March 20. Stocks are 372 Bcf higher than last year at this time and 280 Bcf above the five-year average of 1,374 Bcf. The East region withdrew 13 Bcf for the week while the Producing and West regions injected 11 Bcf and 5 Bcf, respectively.

Despite the bearish report, Blair said the market continues to hold close to the $4 level. “Our two major support numbers near here are $4.050 and $3.930. We seem to be holding at least for now.” With April going off the board Friday, Blair said he expects May will simply slide into place at the April price level. “There really shouldn’t be much of a hiccup at all in the transition,” he said.

Blair said the important question everyone is looking to answer is when will the effects of the current production pullback be felt on supplies, thus putting upward pressure on prices. “I don’t think we are going to see that until such time when cooling demand kicks in or the economy begins its recovery, sparking the industrials to increase their gas demand,” he said. “The other way we could see the supply-demand equation tighten significantly is if prices continue lower, which would force producers to make even more drastic cuts to their production portfolios. Unless we see one of these things, or a combination of these things begin to happen, I don’t think this market is going to make any big moves in either direction.”

Market bulls had to find some solace in Thursday morning’s release of final fourth quarter gross domestic product numbers by the Commerce Department. Analysts were expecting a decline of 6.6%, yet the actual figure came in at minus 6.3%. The modest improvement is welcome relief as the Commerce Department at the end of February had revised its estimate downward from minus 3.8% to minus 6.2%.

“While there are no fresh positive signs suggesting that the recession has loosened its grip — yet — traders are taking their cue from global equities, which have given indications that the worst may well be over, at least for now,” said Peter Beutel of Cameron Hanover, a Connecticut-based energy consulting firm.

In his view it will likely take “agonizing months” for events to catch up with any psychological improvement in this market. “So far, the only factor that has really changed is the perception that the economy might be getting better. This is based on the [Federal Reserve’s] trillion-dollar injection last week, [the U.S.] Treasury’s toxic assets plan this week, and a single better-than-expected report on housing. For this market to build appreciably on its recent gains, we may need more solid and sustained figures. Of course, we could see some follow-through [in natural gas futures] just on short-covering, but it will require new buying over time to get prices trending higher.”

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