The natural gas futures universe was greeted Thursday morning by a 27 Bcf storage injection report for the week ending April 11, which as the first injection of the season was larger than industry expectations and almost large enough to wipe out the year-on-five-year storage deficit revealed in the previous week’s report. However, the day did not unfold as some expected as May natural gas futures shot higher on the number before settling at $10.383, down a nickel from Wednesday’s close.

It appeared that some traders had expected an even larger build as May natural gas futures sprung higher following the 10:30 a.m. EDT report from the Energy Information Administration (EIA). After winding its way lower in early morning trade, the prompt-month contract was trading at $10.362 just prior to the report. Immediately following the number, the May contract knee-jerked to a $10.332 low before springing to a $10.536 high for the day just minutes later. From there the bullish momentum faded.

“The injection was slightly larger than expectations, so I am not sure just how bearish it really is, but it is certainly not bullish!” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “Under a more macro view, the report is totally meaningless because I have metaphysical certitude that by the end of the season, storage will be full. It always reaches full, despite hurricanes, weather or anything else.”

As for the spike in prices on the storage report, Kennedy said speculative traders were likely behind it. “I don’t get the bullish case here. Technically, it looks like it could go higher, but looking at the weather in the short term we have a warm-up coming. Long term, a bunch of the forecasters are calling for normal to below normal temperatures, but not a lot below. It will be ‘chamber of commerce’ weather for a number of cities in the Northeast.

“Although we shouldn’t be, over the last 30 days we have been trading with crude, but I still don’t understand the veracity of the bullish argument here for natural gas,” he added. “Above this price level, resistance points lie at $10.600 and $10.810. We might be able to hit these levels, but there will be selling in there. Right now the tail is wagging the dog a little bit with the futures market keeping the cash market at a higher price level.”

Citigroup analyst Tim Evans was also somewhat perplexed by the reaction to the storage report. “The build of 27 Bcf was above the consensus expectations, although there were some whisper numbers in the 30-40 Bcf range, so not everyone will view this as a high number,” he said. “The figure compares with a 7 Bcf five-year average, so this cuts the year-on-five-year average comparison to a 3 Bcf deficit. Next week’s data is forecast to be more supportive. The market seems to have taken the data in stride, so the failure to drop on bearish data would have to be read as a bullish performance.”

Going into the report, a Reuters survey of 20 industry players produced injection estimates that ranged from 6 Bcf to 37 Bcf with an average expectation of a 22 Bcf build. The 27 Bcf build was extremely bearish when compared to last year’s 26 Bcf draw for the week.

As of April 11, working gas in storage stood at 1,261 Bcf, according to EIA estimates. Stocks are 298 Bcf less than last year at this time and 3 Bcf below the five-year average of 1,264 Bcf. The East region injected 19 Bcf and the Producing and West regions chipped in 5 Bcf and 3 Bcf, respectively.

If forecasts by the National Weather Service (NWS) are correct, near-term heating requirements shouldn’t be a factor in the storage rebuilding process. The NWS predicts below-normal heating requirements for major eastern and Midwest energy markets. For the week ended April 19 New England should experience 105 heating degree days (HDD) or 30 fewer than normal, and New York, New Jersey and Pennsylvania should see 100 HDD, or 15 fewer than normal. The industrialized Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin should experience 111 HDD, or six fewer than normal.

Some analysts noted that while the injection was good for the bearish case, it still will not be a cake walk to refill storage this season. “In 2007, the natural gas refill season began sooner due to an exceptionally warm pattern that developed across much of the United States in late March,” Lehman Brothers analyst Daniel Guertin wrote in a research note. “However, April 2007 turned very cold across the central and eastern United States, which led to a relatively strong withdrawal from storage for this same week last year. As a result, the year-on-year storage deficit narrowed during the reference week, falling from 351 Bcf to 298 Bcf.

Guertin noted that the weather pattern across the southern and eastern United States this week and next week looks rather supportive for net U.S. natural gas injections to continue, but there is a catch down the road.

“It will be difficult for weekly injections to accelerate at the same pace that they did last year between now and early May for two reasons. First and foremost, [liquefied natural gas] imports into the U.S. have been much weaker year-on-year thus far in 2008, and this is forecast to continue through at least the end of April,” the analyst said. “Second, the development of an unseasonably cold weather pattern in Canada this weekend and early next week will keep heating demand across western Canada and the northwestern United States well above normal for the next several days, with temperatures in Calgary averaging at least 20 degrees colder than normal on Sunday and Monday. Some of this cold air will filter into the Midwest and East late next week and for the 11-15 day period. However, it will be in a much weaker form compared to what will be observed in Alberta this weekend and early next week.”

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