A billion cubic feet withdrawal in the West region helped the Energy Information Administration (EIA) report the smallest national storage injection since mid-April. The government agency reported that 66 Bcf was put into the ground for the week ending July 17, which somewhat surprisingly sent futures values scurrying lower on Thursday to close at $3.550, down 24.3 cents from Wednesday’s regular session.

Just prior to the 10:30 a.m. EDT report, August natural gas futures were trading at $3.880. However, in the minutes that immediately followed, the front-month contract dropped to $3.740. The erosion continued for the rest of the session with the contract notching a low on the day of $3.535 just prior to the close.

The real news in the report was that the West region actually withdrew 1 Bcf as the region endured some real summer heat last week, sparking the need for gas for electricity generation.

“I wasn’t really surprised at the withdrawal in the West. Outside of Texas, the West is really the only area of the country that is seeing higher-than-normal temperatures, so I think it makes sense,” said Julio Sera, a broker with Hencorp Becstone Futures LC in Miami. “Overall, the report was not that surprising and was mostly inline with expectations. Now, I think some people were expecting an even smaller injection, which I think was priced into the market ahead of the report. We’re seeing a little bit of profit-taking on that, which is why we are seeing this pullback despite the strength on the day in the other energy commodities.”

Indeed, the sharp drop in natural gas futures was made all the more shocking by the strong result in neighboring crude futures. September crude on Thursday gained $1.76 to close at $67.16/bbl.

Some market watchers are very hesitant to go long on natural gas given the current fundamental climate. “We are probably due for a rally, but fundamentally and technically I’m not sure if I am ready to get on board with that [bullish argument] just yet,” said an Oklahoma City banker. “My debate is that I could see the market going up into the $4.20s, but I also see the possibility of the market giving it up at any time. I would not be long, and I think there is a chance to fade this thing.”

Citi Futures Perspective analyst Tim Evans called the storage injection “slightly supportive,” but noted that it could be used in either the bullish or bearish case. “The net injection of 66 Bcf was slightly below the consensus expectation for a 68 Bcf build and could be seen as supportive on that basis,” he noted. “At the same time, the refill was above the 61 Bcf five-year average for the date, adding 5 Bcf onto the year-on-five-year average surplus, now at 458 Bcf. While the data was not a great surprise, knowing the number for the week may free up some volume of trading, with the debate ensuing over whether it should be ‘buy the rumor and sell the news’ or whether the data still fails to confirm and reinforce bearish sentiment.”

Going into the report, a Reuters survey of 25 industry players produced a range of build expectations from 61 Bcf to 82 Bcf with an average injection expectation of 68 Bcf. The number was much smaller than last year’s 87 Bcf build for the similar week.

According to the EIA, working gas in storage stood at 2,952 Bcf as of July 17. Stocks are 568 Bcf higher than last year at this time. The East region injected 56 Bcf and the Producing region chipped in 11 Bcf.

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