Despite the release of an industry-expected 50 Bcf storage injection report Thursday morning for the week ended Aug. 8, natural gas futures knee-jerked lower. The September contract crashed below established support at $8.200 and tested the psychological $8 level before closing out Thursday’s regular session at $8.136, down 32 cents from Wednesday.

The front-month contract was trading at $8.485 just prior to the report and at $8.290 just a few minutes later. Just after 12:30 p.m. EDT, September natural gas put in an $8 tick, but was unable to break below.

Citi Futures Perspective analyst Tim Evans called the report “neutral,” but noted that background factors put a bearish tint on the overall storage situation. “The 50 Bcf net injection for last week was lower than some estimates, but very much in line with the five-year average,” he said. “While slightly supportive in terms of overall sentiment, we note that this neutral data occurred with some Gulf production off-line. The next two to three weeks of reports are likely to be more bearish.”

Commercial Brokerage Corp.’s Tom Saal said the report was certainly in line with most expectations, but that it might have caught a few people off guard. “I guess there may have been some people who were expecting that there might have been a little bit of a bullish flavor to the report, but they were disappointed and we sold off as a result.” He noted that support now resides at $8. “I wouldn’t rule out the idea that we have some more room lower, but at least so far we have held this $8 area, so we’ll have to wait and see.”

Discussing Market Profile value areas, which is an area between two prices that a majority of the business was done during the day, the broker said Thursday’s was $8 to $8.346. “We will probably test that area Friday, but this is a relatively large area, which means we are seeing a lot of vertical price action,” Saal said. “This should turn into more horizontal price movement, so I would not be surprised if we traded within this value area on Friday.”

Going into the report, supply bulls were hoping for the release of data to be not unlike the petroleum inventory figures released Wednesday. Petro-bulls received an unexpected treat when gasoline figures were released that showed a decline of 6.39 million bbl, well above industry expectations, which were closer to a decline of 2 million barrels. Crude oil supplies also dropped by 400,000 bbl whereas gains were expected. September crude oil gained a hefty $2.99/bbl to $116/bbl Wednesday. The contract gave 99 cents of that back in Thursday’s action to close at $115.01/bbl.

Taking note of the surge in petroleum prices, natural gas traders holding short positions didn’t want to wait around for the surge in crude and products prices to engulf the natural gas market. It was one of those “holy cow” moments, a New York floor trader said Wednesday. “This market was a roller coaster. I think there were some traders that got short the market in September and October below $8.250, and once the market rallied above $8.450, I think traders started to cover. I think that’s what you saw Wednesday,” he said.

Ahead of the report a Reuters survey of 23 industry players produced injection estimates that ranged from 44 to 63 Bcf with an average expectation of 53 Bcf. Golden, CO-based Bentek Energy said its flow model indicated an injection of 45 Bcf. The actual 50 Bcf injection was much larger than last year’s 27 Bcf injection for the week and matched exactly the five-year average build.

As of Aug. 8, working gas in storage stood at 2,567 Bcf, according to EIA estimates. Stocks are 330 Bcf less than last year at this time and 6 Bcf below the five-year average of 2,573 Bcf. For the week, the East region injected 55 Bcf and the Producing region injected 4 Bcf while the West region withdrew 9 Bcf.

Breaking down the report, Lehman Brothers analyst Daniel Guertin hypothesized on why the year-over year storage deficit contracted last week. “On a population-weighted basis, the week-ending August 9, 2008 was 3% warmer than normal for the United States, as measured by cooling degree days (CDD),” he wrote in a research note. “Compared to the same week last year, the weather last week was 20% cooler, and this is the primary reason why the U.S. storage deficit to 2007 narrowed during the reference week despite the fact that there were supply disruptions this year.”

Guertin added that the weather forecast over the next few weeks is “highly supportive” for the year-on-year natural gas storage deficit to continue to narrow, and the pace at which the deficit narrows should accelerate in the coming weeks. “Last August was exceptionally warm for the U.S. on a population-weighted basis, with total U.S. cooling degree days averaging 26% warmer than normal. This led to total August 2007 storage injections of a mere 124 Bcf, well below the five-year average August injection of 237 Bcf.” The analyst said data clearly shows the current U.S. population-weighted CDD shortfall to August 2007, and the high likelihood that this shortfall will continue in the coming weeks.

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