Natural gas supply is still well outpacing demand as evidenced by Thursday morning’s news that a whopping 87 Bcf was injected into underground storage for the week ending April 9. The larger-than-expected build thrust near-month natural gas futures values back below $4.

Heading into the 10:30 a.m. EDT report from the Energy Information Administration (EIA), May natural gas futures were trading at $4.212. However, in the minutes following the report, the prompt-month contract traded down to $4.059. The contract went on to reach a low of $3.967 before closing the regular session at $3.985, down 21.4 cents from Wednesday’s finish.

Citi Futures Perspective analyst Tim Evans called the report “bearish,” noting that the 87 Bcf addition bested his own 70 Bcf prediction as well as all of the news service surveys, which were looking for builds of between 77 Bcf and 81 Bcf.

“The larger-than-expected 87 Bcf in net injections for last week was bearish relative to expectations and also relative to the 21 Bcf five-year average for the date,” Evans said. “This is something of a bearish shock that may call into question the idea that the $4 area represents a floor. It may also have bearish implications for future reports, since it suggests the supply/demand balance was weaker than generally appreciated.”

As of April 9 working gas in storage stood at 1,756 Bcf, according to EIA estimates. The week’s build was significant enough to swing current stocks to a surplus over last year. Inventories are now 64 Bcf higher than last year at this time and 246 Bcf above the five-year average of 1,510 Bcf.

For the week the East Region injected 45 Bcf and the Producing Region injected 38 Bcf while the West Region chipped in 4 Bcf.

Credit Suisse analyst Teri Viswanath noted that working gas storage levels are “not only higher than last year’s levels but also the five-year maximum as computed by EIA. The significant absence of weather-related demand this month will likely lead to record injections much in excess of the 10-year average inventory build in April of 168 Bcf.

“The bottom line is that working gas in storage is filling at a faster clip than last year and should keep a lid on prices,” she said.

The problem for the bulls is that current inventory levels are higher than last year, and this time of year proved to be the beginning of what turned out to be an erratic price decline in 2009, which culminated in a low of $2.409 by early September. The implication are that if the supply/demand balance remains similar to last year, there could be further room to the downside.

Prior to the report, a New York floor trader noted that the inventory report was expected to show a large build, but he said he thought Wednesday’s “short-covering was more technical in nature by funds and managed accounts. The question is at what point do traders reload on the short side. We saw some good scale-up offers between $4.24 to $4.34. We are coming into a low-usage season and we will see what ‘oomph’ [to the downside] this market has.”

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