After gyrating first lower and then higher on the news that 83 Bcf was injected into underground storage facilities last week, natural gas futures shuffled mostly sideways for much of the session Thursday as buyers remained reluctant to accumulate large long positions. The September contract finished the session at $4.718, up a nickel on the day. At 63,615, estimated volume was relatively weak again Thursday, evidence that the market lacks a consensus on price direction.

According to the Energy Information Administration, storage increased 83 Bcf last week to 2,032 Bcf on July 25. By exceeding the year-ago build of 48 Bcf, the market took another hefty chunk out of the oft-quoted year-on-year deficit, which now stands at 502 Bcf. Also drifting lower is the market’s shortfall compared to the five-year average, now at just 257 Bcf.

Not only did the 83 Bcf injection fall in the middle of the 80-90 Bcf range of expectations, it was identical to last Thursday’s 83 Bcf refill report. After a quick flurry of volatility, the market quickly settled down Thursday to trade mostly sideways. By comparison, the price action last Thursday was much different as August futures dropped 14.5 cents to carve out a new seven-month market low.

While noting that the 83 Bcf figure was an undeniably bearish fundamental development, Ed Kennedy of Commercial Brokerage Corp. in Miami said he is cautiously bullish in the short- to intermediate-term for a number of reasons. “We remain extremely oversold on the daily charts and floor traders, many of whom were looking for a bigger number, are very short…. As a hedger, I would look to be a buyer down here, protecting against a move higher this fall or winter.”

Also of note, Kennedy said, is the tropical activity that has flared up in the Atlantic. As of noon Thursday, the National Hurricane Center was tracking two potential systems: a depression in the far eastern Atlantic and an area of storminess in the central Atlantic. “This could give bulls the excuse they were looking for,” Kennedy said.

However, in the longer-term he does not see a sustained push to higher price levels. “Bulls can no longer chant the mantra that production is not meeting demand. What we saw last winter was extremely cold temperatures drawing down the 3,100 Bcf storage level. The previous winter, 2,800 Bcf was enough to meet demand. This remains a weather driven market.”

A peek at the first week to 10 days of August reveals little in the way of hot temperatures. Specifically, the latest National Weather Service six- to 10-day outlook calls for normal and below-normal temperatures for much of the country. Only the Northeast, parts of the Northern Plains, and a section of the Southwest are expected to see above-normal mercury readings, the NWS predicted.

Armed with that forecast, most market watchers agree that storage will reach the 3,000 Bcf level by Nov. 1. That feat was thought to be an impossibility as recently as April when storage plumbed a new low of just 623 Bcf. The market has responded and since that time has injected an average of 94 Bcf a week.

To reach the 3,000 Bcf target, the market will need to average 69 Bcf a week over the remaining 14 weeks in the injection season. By comparison, over the same period last year the market stored only 44 Bcf a week. In 2001, when storage was at similarly low levels the market was able to build 67 Bcf a week from Aug. 1 through Nov. 1.

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