In a delayed reaction to the bearish storage news released Thursday, the natural gas futures market stair-stepped lower in three distinct selling waves Friday.

A gap lower open set the tone early in the session and market on close selling late in the day etched a new two-week low. In fact, just about the only time Friday that the market wasn’t moving lower was during a scheduled 30-minute fire drill from 11:00 to 11:30 a.m. EDT.

The November contract closed at $5.036, down 37.5 cents for the session and just above key psychological support at $5.00. Weakness was also felt in the rest of the winter strip, which sifted 26.6 cents lower to average $5.432. At 82,975, estimate volume was heavy for a Friday session.

After watching the market advance seven-straight sessions through the previous Friday, observers were bracing for a correction lower last week. And while the market slipped lower each session Monday through Thursday, traders agreed that the bears lacked a real selling punch. That was especially true when the market failed to eke out more than a 2-cent loss Thursday despite overwhelmingly bearish storage news.

According to the Energy Information Administration, the 81 Bcf weekly build brought storage levels to 2,944 Bcf on Oct. 10. Not only was the injection larger than the 48 Bcf added during the same week last year and the five-year average refill of 51 Bcf, it also eclipsed the prior week’s 75 Bcf increase. Storage is now just 8 Bcf less than the five-year average — a remarkable feat considering the deficit loomed as large as 600 Bcf this spring.

Expectations had centered on a 70-92 Bcf injection, and an informal poll of industry sources by NGI on Wednesday yielded an average refill expectation of 83 Bcf. With three weeks left in the typical storage refill season, storage needs to average just 52 Bcf/week in order to reach the 3,100 Bcf level by Nov. 1. Generally speaking, ending inventories of 3,000-3,200 Bcf constitute “full storage” heading into the winter heating season.

However, bearish storage news was not the only fundamental factor weighing on prices last week. Also of bearish influence were cash prices, which have lagged the futures market by a half dollar or more since the beginning of the month. Weak demand associated with mild weekend weather took its toll on cash prices Friday, with the October Henry Hub cash price dropping roughly 40 cents to average in the mid- $4.50s. Going forward, market-watchers are wondering if and when the differential will narrow. In a typical October, a spread of 10-20 is seen between October cash and November futures. The 50 cents that exists currently is creating a healthy incentive for storage injections.

On the technical side of the market, most traders expect some degree of further softening this week. Psychological support at $5.00 could stem the tide, offered a DC-based broker who also pointed to the $4.91-93 chart gap created by a gap higher open on Oct. 7. Also conspicuous on the charts is November’s 40-day moving average at $5.029, which could prove to be a pivot for this market. Should prices find support at current levels, it is possible that funds would buy against the 40-day to continue to diminish their short holdings.

Alternatively, the funds, which were still short 15,646 as of last Tuesday, could re-establish their short holdings should the November contract post one or two daily settlements below that moving average.

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