After spiraling lower in Thursday morning trade, June natural gas futures prices reversed course following the Energy Information Administration’s (EIA) 85 Bcf natural gas storage injection report for the week ended May 16, springing near-month futures to a new high for the up move that began back in August 2007. While the injection was well within expectations, the prompt-month contract spiked higher before backing off to close at $11.697, still good for a 5.7-cent gain over Wednesday’s regular session finish.

The June contract recorded its low for the day of $11.481 just prior to the 10:30 a.m. EDT storage report, but was trading at $11.840 just before 11 a.m. Futures recorded the day’s high of $11.857 at 1:30 p.m. EDT before easing off to close out the regular session.

The market’s response to the number was perplexing to traders as analyst estimates have rarely come closer to the actual number. In fact, both Dow Jones and Reuters were on the money with their 85 Bcf injection estimates. Golden, CO-based Bentek Energy wasn’t far off with its flow model calling for an 89 Bcf injection. That said, the actual 85 Bcf build for the week was smaller than last year’s 101 Bcf addition and the five-year average injection of 91 Bcf.

“Maybe the market, other than the analysts, was looking for a larger number,” said a Denver trader. “We follow heating oil closely, and before the number was released heating oil was up 10 cents and natural gas was trading lower. After it came out heating oil fell 10 cents to unchanged and natural gas rose. Go figure,” he said.

Looking further out the trader said he was holding off locking in prices for winter natural gas because he expected still higher prices. “This market could pop to $13 to $14 during the summer.” He added that strategically if that should occur, his company would then lock in prices for its producer clients. “We would probably use collars instead of simply buying put options. The high [implied] volatility makes it cost effective to sell distant calls against the purchase of put options,” he said.

As of May 16, working gas in storage stood at 1,614 Bcf, according to EIA estimates. Stocks are now 302 Bcf less than last year at this time and once again back below the five-year average, which sits at 1,617 Bcf. The East region injected 54 Bcf and the Producing and West regions chipped in 19 Bcf and 12 Bcf, respectively.

The market’s sporadic activity over the last few months has some analysts losing faith in the old market framework where supply and demand dictates prices. “It used to be the case that commodity analysts spent most of their time analyzing supply and demand statistics. But lately the focus has shifted to include a completely new area of investigation devoted to trying to quantify investment flows into commodities,” a team of analysts wrote Thursday in a Barclays Capital research note. “As yet there is little agreement on methodology and some of the wilder estimates of investment levels are fueling what is fast becoming a media obsession that commodities are the next financial bubble.”

Even following Wednesday’s significant 27.5-cent advance to $11.640, some market experts were still looking for further gains. Tom Saal of Commercial Brokerage in Miami, uses the Market Profile system extensively to make his trading recommendations, and at GasMart 2008 in Chicago on Wednesday he said “the market is not ready to give up the ghost to the upside.”

The Market Profile was originally developed by legendary Chicago trader Peter Steidlmayer and applied to grain trading. Steidlmayer would plot trades as they took place in the grain pit and noted that they often formed a bell-shaped curve. His trading strategy would be to buy or sell the ends of the distribution with the idea that prices would return to the norm of the distribution.

Distributions notwithstanding, Saal said that in the case of natural gas “the [up]trend is your friend.”

Thursday also saw crude back off of its aggressive charge higher. If only for one day, July crude shaved $2.36 off of its price to close Thursday’s regular session at $130.81/bbl.

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