In a stunningly well-mannered reaction, considering what the market sometimes does after receiving fresh fundamental news, natural gas futures dipped slightly lower Thursday morning as traders learned that a larger-than-expected 68 Bcf was added to underground storage facilities last week. By 11:20 a.m. EDT the June contract had carved out its low for the session, leaving the prompt month to shuffle sideways within an extremely tight 5-cent range for the rest of the day. June settled at $3.438, down 2.1 cents from Wednesday’s close.

According to the Energy Information Administration, working gas in storage increased by 68 Bcf last week, bringing estimated reserves to 1,725 Bcf. Although the injection fell short of last year’s 111 Bcf refill, it surpassed expectations centered on a 40-65 Bcf increase as well as last week’s announcement that 55 Bcf was added to reserves for the week ending May 10. Storage now stands 458 Bcf higher than last year at this time and 322 Bcf above the five-year average of 1,403 Bcf. Since peaking at 1,218 Bcf back in late December, the year-on-year surplus has steadily narrowed. Last week it reached the 500 Bcf mark, and this week it dropped by another 42 Bcf.

Based on cooler than normal weather forecasts for this week from the National Oceanic and Atmospheric Administration, Thomas Driscoll of Lehman Brothers looks for a 75 Bcf injection to be announced by the EIA next Thursday, versus a 87 Bcf refill a year ago and a five-year average injection of 73 Bcf. Looking even further ahead, year-on-year comparisons become increasingly difficult to match with alternating injections last year of 103 Bcf and 104 Bcf for the next four weeks.

While some market watchers were surprised by the hefty 68 Bcf refill announced yesterday, others said it was to be expected and were quick to point to storage economics at work last week. With cash prices trading at such a discount to June futures, it made sense to stuff all the gas you could into the ground,” a trader told NGI. “I am only surprised we didn’t see a larger injection.” A quick look at NGI’s chart of the “previous five-days” from this past Monday perfectly illustrates this point. While NGI’s Henry Hub index averaged $3.57 last week, the June futures contract averaged $3.70 — a forward carry premium of 13 cents.

Support for the June contract is seen at $3.36 and resistance is expected at $3.52-53. Trading in the natural gas pit will close at 1 p.m. EDT Friday ahead of the holiday weekend.

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