Despite the Energy Information Administration (EIA) report Thursday morning that a much larger-than-average 53 Bcf of gas was injected into storage for the week ended Nov. 11, the natural gas futures market’s knee-jerk reaction was to jump higher on current cold temperatures and winter fears. After showing strength for a majority of the day, a late round of selling pushed the December contract below $12 to settle at $11.942, down 38.7 cents on the day.

In anticipation of the report, December natural gas traded lower to notch a $12.080 tick as of 10:26 a.m. EST, which was 24.9 cents lower than Wednesday’s settle. However, in the minutes following the report’s release at 10:30 a.m.the prompt month reached its high on the day of $12.400.

The contract stayed comfortably in the low $12 area for the remainder of the session until the final 15 minutes, when a quick drop put December at $11.870, which ended up being its low for the day.

While current working gas storage levels at 3,282 Bcf are normally considered to be adequate entering the withdrawal season, the wild card this year is whether there will be adequate flowing production under colder-than-normal winter conditions given the Gulf of Mexico production shut-ins due to hurricane damage.

“Like I have said before, I just don’t think this injection is going to mean anything,” ICAP Energy broker Brad Florer said Wednesday. “Storage is a known quantity at this point. What matters is how cold it is this winter and how much production we can jam out.”

Traders are attempting to balance the onslaught of cold air, which will no doubt have a substantial impact on next week’s storage figures, with the ample amount of gas in storage.

Taking a different tact on the storage situation, IFR Energy Services analyst Tim Evans argued that these reports do make a difference. “The 53 Bcf net injection into U.S. natural gas storage was about in line with the broader market consensus, but that doesn’t make this a neutral report,” he said. “On the contrary, the 56 Bcf jump in the year-on-five-year average surplus was the largest since July 4, 2003, when the swing was enhanced with a data revision.”

Evans added that the industry should not be inclined to overlook the report as “merely” reflecting the mild temperatures last week. “It is neither fair nor rational to discount all builds as being mundane weather events and then hype the swing to moderately below-normal readings now,” he said. “As we’ve noted before, that prior warm spell has both boosted the surplus (to its highest levels since July 22), but has also shortened the duration of the withdrawal season.

“In order to trend higher, natural gas has to lug this storage surplus higher with it, from a price that is already at a vast premium to historical levels,” Evans added. “We think it will fail.”

Commercial Brokerage Corp.’s Tom Saal said the storage report definitely revealed a big number. “Compared to this week over the last five years, it is the largest injection, and this is with all of that gas shut in due to hurricane damage,” he said. “How does that add up? I’m not sure. Maybe what is happening is some demand response, with people turning their thermostats down due to these high gas prices.”

Saal said the immediate price jump following the report was a result of the “instantaneous lack of liquidity” that happens every Thursday following the storage report. “In natural gas, we are still attempting to establish a trading range,” Saal said. “We know the downside is at $11, so we are probing the upside. We were stuck basically between $11 and $12 for over a week, and we broke higher Wednesday.”

As for advice in this market, Saal said, “For buyers, they still have to own some because the upside — if the winter is below normal temperature-wise — could be explosive. Right now, we are trading approximately $3 off December’s $15.25 high back on Oct. 5. If you’re a seller, you probably want to buy put options. You could buy the $12 put for 35 cents. A producer needs to figure out how much it is going to cost him to actually go out and drill for gas so he can figure out what his costs are per MMBtu. I am sure with these prices, he can afford 35 cents.”

As for thermostats, the mercury is dropping in many regions of the country, but cold weather pouncing on major energy markets in November is nothing new. “Chicago temperatures plummeted 33 degrees in just 24 hours Tuesday night and Wednesday — from 55 degrees to 22 degrees — a drop equivalent to the change in normal daytime highs from late October to January,” said Tom Skilling, chief meteorologist at WGNTV in Chicago. He added that the plunge was accompanied by 24 consecutive hours of 30-plus mph wind gusts which generated single digit wind chills. “Coming as it did after one of the mildest November opens on the books (12th warmest of the past 135 Novembers), the change was a brutal one,” he said.

However, cold wintry weather is relative. In spite of the severity of the cold slicing through Chicago, the National Weather Service (NWS) forecasts below normal accumulations of heating degree days (HDD) for major energy consuming markets, the Midwest included. For the week ending Nov. 19, the NWS predicts that the populous states of Pennsylvania, New York, and New Jersey will receive 128 HDD, or 28 below normal. The Midwest states of Ohio, Indiana, Michigan, Illinois, and Wisconsin are forecast to endure 169 HDD, or 9 below normal. A heating degree day is the difference between the mean daily temperature and the 65 degree Farenheit base. Because HDDs are accumulated over the course of a week, 128 HDDs suggests a mean daily temperature of 47 degrees (128/7).

Temperatures are also expected to drop in many regions of the country this winter. Accuweather.com said earlier in the week that winter is likely to bring below-normal temperatures to the Northeast. “While much of the western U.S. will experience above-normal temperatures during the upcoming one- to three-month period, the Northeast U.S., heavily reliant on heating oil, faces a colder-than-normal winter,” the State College, PA-based forecasting firm said. “This will place further strain on consumers who are already wrestling with the higher energy prices that followed this year.”

On the storage report, Citigroup’s Kyle Cooper had been calling for a build between 52 and 62 Bcf. “A build in our range would again be considered bearish on a temperature-adjusted basis,” he said.

A Reuters survey of 22 industry players predicted that the report would reveal a 51 Bcf injection. Wednesday afternoon’s ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, had predicted a 54.5 Bcf injection for the week.

The number revealed Thursday morning was extremely bearish when compared to last year’s no change for the week and the five-year average of a 3 Bcf withdrawal.

As of Nov. 11, stocks were 40 Bcf less than levels at the same time last year and 179 Bcf above the five-year average of 3,103 Bcf. Stocks in the East region increased by 28 Bcf for the week, while the Producing and West regions contributed 21 Bcf and 4 Bcf, respectively.

Because of the forthcoming Thanksgiving holiday, the EIA reported that its Weekly Natural Gas Storage Report for the week ending Nov. 18 will be released on Nov. 23 between noon and 12:10 p.m. EST.

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