October natural gas continued to erode Thursday as traders digested a government report of an above-average injection of 89 Bcf. The decline was less than some expected, and analysts noted the relative resilience of natural gas to an otherwise deteriorating oil and equity market environment. October slipped 2.5 cents to $3.705 and November retreated 3.8 cents to $3.782. November crude oil imploded $5.41 to $80.51/bbl.

“Most traders were looking for a build between 93 Bcf and 97 Bcf, so we were expecting a higher number,” said a New York floor trader. “Just before the number came out, the market did trade down to $3.665, and when it came in below 90 Bcf, it spooked some of the shorts; they covered and the market bounced back a little bit.

“Everything else is getting hammered, so you would think natural gas would be down, but we are not far from unchanged, and I think it’s because the market is a little oversold.

“Options expiration is in a couple of days, and I would tend to think this market is going lower from here, down to the $3.60 area in the next day or two. I think you will see shorts continuing to press the market lower and at options expiration try and squeeze the sellers of put options. My gut tells me we’ll see $3.60 come Monday afternoon.”

Technical analysts have set their sights on lower prices. “Wednesday’s break below $3.743 confirms our original sentiment — that an ABCDE [congestion] pattern is still in progress from the $4.893 high,” said Brian LaRose, analyst at United-ICAP. “To review our targets: 0.618 of (C)=(E) targets 3.591-3.585; 0.7862 of (C)=(E) targets $3.445-3.474. [The entire] (C)=(E) targets $3.267-3.200-3.193. As these objectives are not far below, we will be watching intently for evidence of bottoming action.”

Going into the report the case by the bears for lower prices had been fortified by the assumption that once summer heat and the threat of tropical disturbances had passed, increasing production would pump up storage to levels able to pressure prices.

That assumption passed its first test, more or less, with the Energy Information Administration storage report. Last year 78 Bcf was injected, and the five-year average is currently running at 72 Bcf. Late last week Energy Metro Desk conducted a survey of 17 analysts and traders and found a range of 84-104 Bcf with an average 92 Bcf. Subsequent estimates didn’t stray too far. IAF Advisors in Houston forecasted a build of 90 Bcf, and a Reuters poll of 25 market participants showed an average 91 Bcf with a range of 78-97 Bcf.

If a storage addition almost 20 Bcf higher than the five-year average wasn’t enough to encourage the bears, the Federal Reserve Wednesday cited “significant downside risks” in the U.S. economy, and oil and equity markets tumbled. It said it will replace $400 billion of short-term debt with longer-term treasuries in order to spur growth as the recovery falters two years after the biggest slump since the Great Depression.

The bears got even more ammunition Thursday as crude oil tumbled, the Dow Jones Industrial Average swooned 391 points to 10,734, and the U.S. dollar (index) rose 77 cents , or a full 1%. Even gold fell, losing $69/oz. to $1,739.

In its 5 p.m. EDT Thursday report the National Hurricane Center said Tropical Storm Ophelia was about 890 miles east of the Leeward Islands and was heading to the west at 13 mph. Maximum sustained winds were 65 mph and projections showed it heading to the southeastern United States.

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