Recession fears that once again knocked down Wall Street on Wednesday also put downward pressure on energy futures as November natural gas dropped 13.5 cents to $6.592 and November crude shaved $4.09 to close at $74.54/bbl.

Crude made a new low for the move Wednesday as economic signals continued to show great uncertainty. The Dow Jones Industrial Average crashed 733 points lower on the day to close at 8,578.

“The natural gas market is largely consolidating within its recent range, weaker than on Tuesday in sympathy with the new lows in crude oil, but really just idling,” said Tim Evans, an analyst with Citi Futures Perspective. “Rising seasonal demand is a focus for this heating fuel that is somewhat lacking in the broader world of petroleum. We also note that [Wednesday’s] update on the tropics continues to show some activity, but no imminent storm threats for the Gulf of Mexico, and the clock running down on overall hurricane season risk.”

Some market technicians see the current trading range as indicative of a market that not only cannot break out higher, but is likely to trade lower. “Natgas spent the entire month early September to early October trapped in a dollar-wide congestion zone, and since early October natgas has been trapped in a tiny $6.500 to $6.800 congestion zone,” observed Walter Zimmerman of United Energy. He added that the lack of direction was emphasized in Tuesday’s trading as the market created a “neutral spinning top [candlestick pattern]. Overall we read this congestion as evidence that natgas is still headed lower.”

One of the few factors supply bulls can point to is the ongoing supply deficit relative to last year, but if weather doesn’t cooperate, that deficit may be erased as the heating season progresses. Last Thursday the Energy Information Administration (EIA) reported that with a hefty 88 Bcf injection, supplies stood at 3,198 Bcf, still 3.5% lower than last year’s 3,315 Bcf in storage. Tom Doremus of Crossbow Energy Advisors, a Connecticut-based energy consulting firm, points out how important early withdrawal data for November and December will be.

November and December withdrawals along with March 2009 will be key, according to Doremus’ analysis. “In November and December of 2007 we pulled 688 Bcf compared to 382 Bcf in 2006 and 560 Bcf in 2005. In March 2008 we pulled 218 Bcf compared to 46 Bcf in 2007. We are setting up a supply situation such that it is necessary to be cold, if not very cold, for next month; otherwise we are looking at a continued reduction of the supply deficit relative to last year,” he said.

Heading into Thursday’s storage report for the week ended Oct. 10, the industry appears to be expecting another larger-than-average build. Evans said he expects the EIA to reveal an 80 Bcf build, while a Reuters survey of 23 industry players produced a range of estimates from 73 Bcf to 93 Bcf with an average build expectation of 82 Bcf.

Golden, CO-based Bentek Energy said its flow model indicates an injection of 76 Bcf, which would bring stocks 4.4% below the five-year high and 2.6% above the five-year average. The research and analysis firm said injections are expected to remain above the five-year average through the remainder of the injection season, resulting in end-of-season inventories above the five-year average, but with the effects of two hurricanes, inventories will fall short of the five-year high.

Taking a turn from the norm, Bentek said it expects the Producing region to inject more gas than the East region for the week. The company expects a 34 Bcf injection in the Producing region, a 33 Bcf build in the East region and a 9 Bcf addition in the West region.

“With the East region nearing capacity along with mild temperatures in the Southeast, injections into fields in the Producing region have started to ramp up, resulting in a larger injection in the Producing region than the East,” Bentek said in its weekly storage update. “The Producing region is the only region with inventories below the five-year average.”

An injection in the high 70s Bcf to low 80s Bcf range would be much larger than historical comparisons. For the similar week last year 49 Bcf was injected into underground stores, and the five-year average build is 63 Bcf.

As the injection season winds down with only four more reports in the traditional refill season, the American Gas Association (AGA) believes weather will play a pivotal role in the supply/demand equation.

“Even without 2.8 Bcf/d in Gulf of Mexico production (as of Oct. 10), domestic gas supply continues to grow from onshore sources and working gas injections have remained strong,” the AGA said in a Natural Gas Market Indicators update on Wednesday. “Some analysts believe that industrial consumption of natural gas may fall slightly as the U.S. economy slows, while the natural gas futures outlook for November 2008 through March 2009 placed contracts at values below $7.25/MMBtu (as of October 10, 2008). Winter weather will become the final piece of the puzzle, even as the forward market reflects a solid storage position and increasing strength in domestic production.”

©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.