Providing more validation for the recent $1-plus slide in natural gas futures, the Energy Information Administration (EIA) reported Thursday morning that a whopping 99 Bcf was injected into underground storage for the week ended June 22. The fresh bearish news allowed bears free rein on the day as the August contract — in its first regular session as front month — reached a low of $6.575 before closing at $6.655, down 42.8 cents from Wednesday’s close.

The $6.575 low was seen as a test of the low recorded back on Jan. 19, when the February contract recorded a $6.560 tick. Future support levels — or targets for the bears — could be the Jan. 18 low of $6.150 or the Dec. 27, 2006 low of $5.740.

Prior to the report’s 10:30 a.m. EDT release Thursday, the prompt month was trading at $7.010. In the minutes that immediately followed the report, August natural gas went into a freefall, trading at $6.800 as of 10:38 a.m. After a small rebound, front month prices continued lower on a grand scale.

“The 99 Bcf net injection for last week was clearly bearish, catching the market looking for a much lower figure,” said Tim Evans, an analyst with Citigroup in New York. “We’re hard pressed to come up with an easy explanation here, although it is possible that Rocky Mountain [gas] flows have picked up following the restrictions imposed by pipeline maintenance.” Citigroup had been expecting an 85 Bcf build, while a Reuters survey came up with an 83 Bcf build prediction and separate surveys from Dow Jones and Bloomberg both were calling for 82 Bcf injections.

“What we saw was a really big injection, which was much bigger than the five-year average even,” said Ed Kennedy, a broker with Commercial Brokerage Corp. in Miami. “We are running into an interesting situation. It looks like the path of least resistance is downward. However, there is a lot of scaled-down buying in this market all of the way out to October. When people are going to start paying attention to that fact is hard to say.”

Jay Levine, a broker with enerjay LLC, said the injection eclipsed “even the highest of estimates” and helped “to continue the ever-growing disparity in energy prices, as natural gas tanks and crude soars.” August crude on Thursday pushed through the $70/bbl barrier to record a high of $70.50/bbl before coming to a close at $69.57/bbl, up 60 cents from Wednesday’s close.

“High [storage] numbers aside and little in the way of weather-concerns, I’m not buying that this is still anything but a long-term bull market in energy or, in the case of natural gas, a bull in bears clothing…even if that clothing fits like a glove for now,” Levine added. “Bearish [storage] numbers to be sure — and you have to figure a reasonable ‘explanation’ to the recent nose-dive in natural gas — and while it does leaves room for further declines, it also leaves room for reversals and future surprises.”

The twin pillars of the bullish case, above-normal temperatures and an active tropical storm season, are weakening. In the near term, cooling degree day (CDD) accumulations forecast by the National Weather Service (NWS) augur another stout injection for next week. For the week ended June 30, the NWS predicted 54 CDDs for New York, New Jersey and Pennsylvania, or 13 more than normal. For the industrialized Midwest states of Ohio, Indiana, Michigan, Illinois and Wisconsin, 53 CDD, or eight more than normal are expected. For the week ended June 23, the NWS reported actual CDD accumulations of 35 CDD for the Mid-Atlantic states listed above, or two more than normal, and 44 CDD for the Midwest states, or five more than average.

Longer-term weather is also not helpful to the bullish case. The Thursday morning MDA EarthSat 11- to 15-day forecast shows only normal temperatures for the Midwest and Northeast. North and east of a broad arc extending from Wisconsin to southern Indiana to Connecticut is anticipated to enjoy seasonal temperatures, the forecaster said.

Late last week the bulls were dealt another setback with the release of data from the National Oceanic and Atmospheric Administration (NOAA) (see Daily GPI, June 22). NOAA pointed out that below-normal sea surface temperatures, which are helpful for tropical storm development, have not developed in the Central Pacific, and sub-surface ocean temperatures have become slightly above normal, thus making “a transition to La Nina conditions much less likely in the next few months than had appeared earlier in the year.”

With each sizeable storage injection, the overall supply picture continues to take on an even larger bearish tint. According to date-adjusted EIA data, 68 Bcf was injected last year for the week, while the five-year average injection rests at 92 Bcf. With the 99 Bcf injection coming in well above last year’s build, current storage levels continue to rapidly close the deficit to last year’s storage levels.

As of June 22, working gas in storage stood at 2,443 Bcf, according to EIA estimates. Stocks are 90 Bcf less than last year at this time and 372 Bcf above the five-year average of 2,071 Bcf. With air conditioners not working overtime in the East last week due to no real significant heat, the region injected an impressive 67 Bcf, while the Producing and West regions deposited 21 Bcf and 11 Bcf, respectively.

The EIA also announced that due to Wednesday’s Independence Day holiday, the storage report for the week ended June 29 will be released on Friday, July 6, between 10:30 a.m. and 10:40 a.m. EDT.

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