Even though the traditional natural gas storage injection season ended with last week’s report, traders and analysts, while expecting another injection to be reported by the Energy Information Administration (EIA) for the week ended Nov. 7, were not anticipating the whopping 62 Bcf that was injected into underground storage. As a result, near-month futures on Friday tested support at $6 before rebounding to nearly unchanged from Thursday’s close.

Heading into the 10:35 a.m. EST release of the report on Friday, December natural gas futures were trading at $6.231, but in the minutes that immediately followed, the front-month hit a low of $6.054. However, the contract rose from there, putting in an afternoon high of $6.366 before closing at $6.312, down less than a penny from Thursday’s finish and 44.5 cents lower than the previous week’s close.

Citi Futures Perspective analyst Tim Evans, who had been calling for a 40 Bcf injection to be revealed, said the bearish report was likely a result of weather. “The build was bearish compared with expectations and also relative to the 23 Bcf five-year average for the date,” he said. “We could be seeing a step higher in supply for the market, or perhaps the warmer-than-normal temperatures were in just the right part of the country last week to suppress heating demand more than expected.”

Ed Kennedy, a broker with Hencorp Becstone Futures LC, said neither the large storage injection nor the fact that inventories are relatively full surprised him in the least. “We always fill storage,” he said. “It happens every year like clockwork.

“After the report, we tested support down at $5.990, but I am not really interested in the downside here. We have some very cold air for this time of year coming in. It is expected to be six to eight degrees below normal for much of the eastern half of the country, with snow from the Ohio Valley north through the early part of the week. A number of the independent forecasters are calling for a step-down pattern, where we get a cold wave, a small warm-up, followed by another cold wave that is colder than the first. Then we will see another warm up followed by another cold wave that finally sticks through the month of December. Now forecasts have been known to be wrong, so we will have to see what actually ends up happening.”

As for price direction, Kennedy said he doesn’t think the bears can run much further here. “I don’t think gas will keep a five in front of its price for long, if at all,” he said. “There continues to be too much scaled-down buying by the utilities at that price level all of the way out in the calendar.”

Natural gas prices are in a tug-of-war between weather and storage factors and broader economic determinants that indicate natural gas demand, and prices may suffer from a weakening economy. If supplies can hold upwards of 3,000 Bcf by Jan. 1, bears, or at least price moderates, are likely to remain in control. It’s only happened once before; at the end of 2006 supplies stood at 3,070 Bcf, and for the remainder of 2007 prices were relatively constrained.

Spot futures traded as low as $5.740 in late December 2006 and had to settle for a (albeit broad) trading range for 2007. By August prices had dipped to $5.230 after posting a high of $8.230 in May. The high for the year of $8.660 was recorded in early November.

The 62 Bcf injection report Friday was much larger than anyone expected. A Reuters survey of 24 industry players produced a 38-60 Bcf range of builds with an average injection estimate of 45 Bcf. Evergreen, CO-based Bentek Energy said its flow model indicated a 48 Bcf build. The actual injection dwarfed last year’s 4 Bcf build for the week and the five-year average injection of 23 Bcf.

As of Nov. 7, working gas in storage stood at 3,467 Bcf, according to EIA estimates. Stocks are now only 72 Bcf less than last year at this time and 117 Bcf more than the five-year average of 3,350 Bcf. The East region injected 31 Bcf and the Producing and West regions added 27 Bcf and 4 Bcf, respectively.

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