Amid a stunningly bullish one-two combination of a tropical depression and a record low storage refill for the month of August, natural gas futures soared higher to test one-month highs yesterday as traders covered shorts initiated on recent moves below the $3.00 mark. The September contract rode the buying wave for a 37.4-cent advance, breaking through several levels of resistance on its way to a $3.468 closing price.

The first jolt was felt in the morning hours Wednesday as traders learned that a tropical system in the Atlantic Ocean had become a tropical depression with maximum sustained winds near 35 mph. According to the 11 a.m. update by the National Hurricane Center (NHC), Tropical Depression Four was about 975 miles east of the Windward Islands and moving to the west at a steady clip of 23 mph. Further strengthening was expected through 11 a.m. today, the NHC said.

By 12:20 p.m. EDT, the September contract was 4.6 cents higher at $3.14 after etching out a $3.175 high earlier in the session. As it turned out, however, the bulls hadn’t even broken a sweat yet.

According to the American Gas Association, an unprecedented 3 Bcf was added to underground storage facilities last week, bringing stocks to 69% full at 2,286 Bcf. Never since the AGA began tabulating storage figures in 1994 has less than 37 Bcf (August 1995) been injected into the ground during a week in August. The five-year average weekly injection rate for the month of August is 67 Bcf. Last year during the same week, the market stuffed 52 Bcf into the ground. Historically, a single-digit injection figure is observed near the beginning of April or end of October, when storage operators are switching from withdrawals to injections or vice-versa.

Prior to the release of the report, traders were fully aware of the potential for a low refill. After all, supply was off last week by an estimated 5-6 Bcf due to Tropical Storm Barry and demand was increased by at least that much in reaction to the heat wave. And while that only adds up to about 12 Bcf, traders also noted that there was an economic disincentive to inject gas into the ground last week because the spot cash price was greater than the September futures price for much of last week. That backwardized market situation infers that gas should be withdrawn and not injected into storage.

In the Consuming Region East a net 12 Bcf was withdrawn last week from storage. The Consuming Region West more than canceled that out with a net 15 Bcf injection, and the Producing Region was flat for the week.

“Based on the sample we had for the Producing Region, there were a number of companies that were up just a little bit and down just a little bit,” said AGA’s Chris McGill, managing director of policy analysis. “The fact that it netted to zero was just an accident of the mathematics. In the West, most of the companies were up across the board. The Eastern region had one company that was down by more than another group of companies, which were also down. And then we had another group of companies that were up, but the net value [for the Consuming Region East] was still a minus 12 Bcf.”

McGill noted that the East is where the AGA has its best coverage with a 96% survey sample. “I really feel quite good about [-12 Bcf] as a number. We’ve rechecked and called the companies to make sure that this is what they really meant. They validated all our data.”

And while he admits that a net 3 Bcf injection is extraordinary for the middle of August, McGill points out that it is not the first time an AGA report shocked the market. “It happens several times a year that our numbers turn out to be something that the market is not expecting…. but I would suggest that when you go back and plot our numbers against [Energy Information Administration] we are validated. Historically, we are pretty much on target,” he said.

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