Despite missing out on the Independence Hub’s 900 MMcf/d of production for more than a month, the natural gas industry proved Thursday that it can still put healthy injections into storage after the Energy Information Administration (EIA) reported that 93 Bcf was deposited for the week ended May 9.

Seizing the bearish news, futures prices dropped to a low of $11.141 before rebounding to close at $11.399, down 19.9 cents from Wednesday. The day’s excitement was added to by an approximate three-hour suspension of trading on the IntercontinentalExchange (ICE) due to a power outage (see related story) and unsubstantiated reports that the EIA inventory report hit the web early.

After trading as high as $11.718 prior to the report’s normal 10:30 a.m. EDT release, June natural gas futures began its plunge at approximately 10:22 a.m. EDT as a few traders alleged that the EIA storage number jumped the gun by as many as eight minutes. Just after 11 a.m. EDT the prompt-month contract was trading at $11.315.

“It was definitely out early,” said a New York broker. “In talking to various people, it may have been out early by as much as seven or eight minutes. I fielded a few calls from customers wondering why the market got crushed just ahead of the normal 10:30 a.m. report. When I looked at 10:28 or 10:29, the storage report was up there.” Remembering back to the days that the American Gas Association ran the report and the few mistakes that occurred, the broker noted that someone could “make or lose a significant amount of money” on the report coming out a few minutes early.

In response to the claim, the EIA said it had heard no such complaints about an early release of data. “I have not heard anything about speculation about any outside folks getting early disclosure of information from the weekly storage report,” said the EIA’s Bill Trapmann. “I can tell you from the way the software works, it does not send out any information, so it is not like it can misfire and do a partial distribution. It blocks access to the site by anyone until a designated time, at which point the entire world has equal access. We’ve had rumors like this in the past and we take this very seriously. We have looked into each rumor and it has never amounted to anything.”

Adding to the hectic day, electronic energy and agricultural trading platform ICE was off-line Thursday for approximately three hours following an “emergency power outage,” according to the Atlanta-based commodity exchange.

Citi Futures Perspective analyst Tim Evans said the bearish effect of the EIA report might be short-lived. “The build was moderately above expectations and above the 79 Bcf five-year average rate,” he said. “This at least confirms that weather swings are still more important than the Independence Hub outage, with bearish refill rates still possible. Next week’s data looks more supportive though, which might limit any bearish price reaction.”

Going into the report, Evans was looking for a 90 Bcf injection while Golden, CO-based Bentek Energy’s flow model indicated an injection of 91 Bcf. While the actual injection came in well above the five-year average, it fell just below last year’s 95 Bcf injection for the week.

Commercial Brokerage Corp.’s Ed Kennedy said the current elevated price level doesn’t make sense on a fundamental level. “The dip in price is what you would expect after a larger than expected injection, but crude futures are keeping it somewhat buoyed here. While they shouldn’t be trading with each other, they have been over the last few months because I think we have too much speculative interest in here from the funds. If crude weakens up, then I think we will too. Based on fundamentals, I don’t think we have any business trading anywhere near these elevated prices.”

Addressing the Independence Hub situation (see Daily GPI, May 15), the broker said, “The hub is a worry. It caught me by surprise when they said Tuesday night that they were coming back up in mid-June as opposed to mid-May. That creates a problem because that gas is gone, so that is the bullish case. On the bearish side the weather forecasts are calling for below normal temperatures for May. Some see that as bullish, but you have to remember what season we are in. Below normal this time of year means chamber of commerce weather across the big demand areas, which is going to lower demand. The only potential fly in the ointment is if we find early tropical storm activity in June. That would definitely worry the market.”

Looking at trading strategies, Kennedy said options are the way to go, especially now. “I just bought a slug of puts for the storage guys. We have two weeks to go before the start of hurricane season and the implied volatility is 41%. That is cheap, fellas,” he said. “Why declare when you can create a win-win scenario. You lock in a profit on your storage by buying the puts. If the market goes higher, you win even bigger. I am also buying a lot of calls for the end-users who really don’t want to lock these prices in. I don’t blame them. As long as the implied volatility stays relatively low, it is a win-win scenario for everyone.”

Floor traders Wednesday were impressed with the fact that natural gas futures were able to break the linkage with crude oil futures. June gained 17.6 cents Wednesday to settle at $11.598, but June crude oil faltered $1.58 to close at $124.22. On Thursday June crude traded a wide range before finishing at $124.12/bbl, down a dime.

“The [delayed return of] Independence Hub is definitely a factor, but it’s unclear how high prices should be. Initially $12 should be resistance, but every time the market gets to the next big-dollar price level it works at it and becomes another point to get through,” said a New York floor trader.

Natural gas may have its own set of bullish factors to deal with. Traders Wednesday reported a whopping trade of 10,000 options contracts. April 2009 $20 calls traded at 15 cents, well above the $15.780 post-Katrina record high of December 2005, and much higher than the April 2009 futures settlement of $10.537.

As of May 9, working gas in storage stood at 1,529 Bcf, according to EIA estimates. Stocks are 286 Bcf less than last year at this time and 3 Bcf above the five-year average of 1,526 Bcf. The East region injected 53 Bcf while the Producing and West regions contributed 27 Bcf and 13 Bcf, respectively.

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