One week after a 7 Bcf weekly storage withdrawal shocked natural gas storage prognosticators, the Energy Information Administration (EIA) reported Thursday that 19 Bcf was injected into underground stores for the week ended July 28, reflecting a number that much of the industry had been expecting. The report allowed September natural gas to continue lower — a direction the contract had begun in Wednesday overnight trading on word that Tropical Storm Chris was still weakening.

September natural gas ended up finishing Thursday all of the way down at $7.292, a drop of 50.7 cents from Wednesday’s close. Just prior to the 10:30 a.m. EDT storage report, prompt month natural gas was trading at $7.480. Immediately following the report, the September contract dropped down to put in a $7.230 low before rebounding back into the $7.30s. After putting in a high of $7.540 just after noon EDT, the prompt month worked lower for the remainder of the session to close.

In addition to the neutral storage report and a weakening tropical storm, bears on Thursday morning were also receiving support for their case from the expectation that some of the scorching heat in the East was to begin moderating. In addition, a respected hurricane team lowered its expectations for the 2006 Atlantic hurricane season from 17 named storms and nine hurricanes to 15 named storms and seven hurricanes.

The Colorado State University forecast team led by Phil Klotzbach and William Gray said Thursday (see related story) that the forecast reduction was due to sea surface temperatures that are not quite as warm and tropical Atlantic surface pressure that is not quite as low. In addition, the forecasters noted that the eastern equatorial Pacific has warmed some and trade winds in the tropical Atlantic are slightly stronger.

“I think the message right now is that the two things that can impact natural gas prices in the summer — hot weather and hurricanes — are currently pointing in different directions,” said Tom Saal, managing director of Commercial Brokerage Corp. in Miami and a licensed commodity trading advisor. “We have obviously had the hot weather but we haven’t had the hurricanes yet. The only thing we know for certain is that this situation has increased volatility.

“Before the increase in the volatility, we were recommending using an options strategy in the market,” he said. “Now that options are extremely expensive you have to let the volatility work for you if you are a buyer. You have to remember that volatility is directionless, it can go both ways. If you are a buyer, you have to wait for the market to move south. You would likely want to use a flat price…probably something more toward $7 on the September contract.”

As for the market’s current price direction, Saal said the immediate direction appears down. “I think the weather is starting to break and Tropical Storm Chris has not really materialized as of yet,” the broker said. “However, this Chris could reform and go into the Gulf of Mexico, so market participants really have to keep their finger on the pulse of this thing.”

Saal along with his Commercial Brokerage colleague, Ed Kennedy, will share some of their market reading expertise at one of their popular Natural Gas Futures Trading Workshops on October 4-5 at the New York Mercantile Exchange. Joining them will be long-time floor trader and market-mover Sandy “Trot” Goldfarb, who will break down for attendees how he views the gas futures market — both in the short and long run. For more information about the gas futures workshop visit https://workshops.gasmart.com/hedging.

Throughout the day, Tropical Storm Chris continued to weaken. According to the National Hurricane Center (NHC), Chris was “barely a tropical storm” with winds dropping to nearly 40 mph. “Chris at marginal tropical storm strenght…but likely to weaken,” the NHC said Thursday afternoon. As of 5 p.m. AST, Chris was 195 miles east-southeast of Grand Turk Island moving toward the west-northwest at 10 mph. the storm was expected to weaken to a tropical depression late Thursday or early Friday. The tropical storm, or what remains of the disturbance, is expected to impact Cuba early Sunday morning.

Some market experts warned that Chris could go strengthen then weaken a number of times ahead of the weekend. “Tropical Storm Chris may go through several cycles of ebb and flow or shifts in its storm track that translate into price reactions in coming days and there are other storm systems that will follow, even if Chris falls apart,” said Citigroup analyst Tim Evans.

With Tropical Storm Chris fizzling, attention was firmly on the storage report. Industry expectations for the report were a lot closer in range than they were last week, when the market was surprised with a 7 Bcf withdrawal. A Reuters survey of 21 industry players this week hit the 19 Bcf injection number right on the head. Golden, CO-based Bentek Energy had said it expected an 18 Bcf injection and the ICAP derivatives auction revealed a consensus build expectation of 10.35 Bcf.

The 19 Bcf injection paled in comparison to last year’s 37 Bcf build for the week and was dwarfed by the five-year average injection of 62 Bcf. As of Friday July 28, working gas in storage stood at 2,775 Bcf, according to EIA estimates. Despite the small build for the week compared to historical figures, stocks are still 360 Bcf higher than last year at this time and 447 Bcf above the five-year average of 2,328 Bcf. The East region injected 30 Bcf for the week, while the West and Producing regions withdrew 8 Bcf and 3 Bcf, respectively.

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