The natural gas industry was not quite ready to switch over to the storage injection season as proved by the Energy Information Administration’s (EIA) Thursday morning report that 29 Bcf was removed from underground stocks for the week ended March 28. Despite the withdrawal, natural gas futures traders — sticking to the recent trend of flip-flopping gains and losses (see Daily GPI, April 3) — watched the May contract finish Thursday at $9.417, down 41.5 cents from Wednesday’s close.

While trading the entire session below Wednesday’s close of $9.832, the prompt-month’s chart on Friday still resembled a roller coaster’s course. After working lower in overnight trade, May natural gas futures approached the 10:30 a.m. EDT report trading at $9.654. Immediately following the number’s release, the prompt-month contract dropped to $9.520 before rebounding to the day’s $9.778 high just after 11 a.m. EDT. From there, things tracked lower.

In addition to outpacing the 2 Bcf five-year average pull, the actual 29 Bcf draw was also a far cry from last year’s 35 Bcf injection. As of March 28, working gas in storage stood at 1,248 Bcf, according to EIA estimates. Stocks are now 304 Bcf less than last year at this time and only 6 Bcf above the five-year average of 1,242 Bcf.

“The storage report was meaningless, even if we are erasing the year-over-five-year average surplus. We keep hearing from a few people in the industry that there may be problems refilling storage this season, and I have a feeling that there are two or three very large towns missing their village idiots,” said Ed Kennedy of Commercial Brokerage Corp. in Miami. “In 2005, with all of those rigs shut in after Hurricane Katrina, we still got record storage levels in the ground. There is no supply problem. Now there is a little less slack in the system than there was last year. Going by the long-range forecasts, I am not concerned right now. AccuWeather.com’s long-range forecast released Wednesday calls for above-normal temps, but only by a degree or two, so we are not talking about a heat wave here. Refilling storage should not be a problem, they do it every year come hell or high water — literally.”

Kennedy said the market will be paying close attention to the rest of the long-range temperature forecasts as well as the hurricane forecasts, which are due to come out over the next week or two. “With hurricanes, the dumbest statement I have ever heard is that the past two storm seasons exhibited below-normal activity,” he said. “That is incorrect; they were above normal, but nothing hit land. You have to remember that in 1992 there was only one hurricane. It was Andrew, and you know the rest of the story.”

Kennedy sees a little bit of a premium in current futures prices. “All things being equal, I think prices should come off here. However, there is going to be good support in the low $9 area, and I think we are going to have to live with that. I think we are going to go into a trading range for a while until the actual weather for the summer starts to develop.”

Citigroup analyst Tim Evans also suggests an inclination toward lower prices. “The draw of 29 Bcf was light on the expectations for 32-35 Bcf in net withdrawals, at the bottom end of the range of expectations,” Evans said. “This suggests that heating demand is tapering off even a bit faster than the degree-day data would suggest. The figure was still supportive compared with a 2 Bcf five-year average withdrawal, but the price reaction should be bearish in the near term nonetheless.”

All indications are that injections are not ready to begin yet. The AccuWeather.com 11- to 15-day forecast calls for below-normal temperatures across a broad swath of the U.S. North of a line from Idaho to Tennessee to Delaware is forecast to be below normal, and only South Texas, the Desert Southwest, Southern California and southern Nevada are expected to be above normal. The remainder of the country is forecast to be normal.

In Wednesday’s trading the May contract experienced a gaping 45-cent range leading to frustration by short-term traders. A New York floor trader characterized the recent trading activity as choppy and said “guys aren’t holding on to positions the way they used to.” The trader added that he anticipated a wide swinging market with a range of $8 to $10.

Most people within the industry had been expecting the EIA to report a withdrawal in the mid to high 30s Bcf area. A Reuters survey of 21 industry players produced a range of pull expectations from 25 Bcf to 58 Bcf with an average draw estimate of 35 Bcf. Strategic Energy & Economic Research Inc. analyst Ron Denhardt was calling for a 38 Bcf pull, while Barclay’s Capital was looking for a 34 Bcf draw. Golden, CO-based Bentek Energy came close with its 30 Bcf prediction.

The East region withdrew 32 Bcf and the West region removed 1 Bcf, while the Producing region injected 4 Bcf.

©Copyright 2008Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.