Even with the Gulf of Mexico shut-in from hurricanes Gustav and Ike, the natural gas industry was still able to inject a healthy 67 Bcf into underground storage for the week ended Sept. 12, according to the Energy Information Administration (EIA). The injection was large enough to bring October natural gas futures back well below $8 in Thursday trade.

After trading as high as $8.320 in the overnight Globex trading session, the prompt-month contract was back down at $7.957 just prior to the 10:35 a.m. EDT release of the report. In the minutes that immediately followed, October natural gas plummeted to record a tick at $7.453. The contract finished Thursday’s regular session at $7.621, down 28.9 cents from Wednesday’s close.

Wall Street received some respite on Thursday as well. Following a couple of monumental down days that included the news of Lehman Brothers’ bankruptcy and the sale of Merrill Lynch, the Dow rallied Thursday afternoon to close 409 points higher (see related story).

While shut-ins in the Gulf of Mexico are still significant following the twin hurricanes of the last few weeks (see related story), it appears the industry has a lot of faith in onshore production levels. In addition, some traders note that one must take into account the demand destruction caused by Gustav and Ike.

“Gee, it looks like we are going to fill storage yet again. What an unbelievable surprise,” Ed Kennedy of Commercial Brokerage Corp. in Miami, said sarcastically. As for the run-up in price of the last few days, he said there are fundamental factors in play. “There are 15 processing plants down; there are still shut-ins and there is still damage to rigs. On the other side, you have also lost a lot of gas demand. Houston is the fourth largest city in the country and there is not a whole lot of demand there right now. That excess gas is going directly into storage.”

Looking at the current price level, Kennedy said he sees some pretty solid support nearby. “I think traders are going to put more downward pressure on prices, but I think $7.300 to $7.400 is going to be about it,” the broker said. “We are getting to the end of the injection season. Anyone who doesn’t have any price protection for what is forecast to be the coldest winter in 10 years is going to get it on and I think they are going to move their prices up a little bit. We do have extraneous circumstances in the market because of all of these swap-stealers and hedge funds unwinding positions, but I still don’t think we are getting below $7.300.”

Heading into the natural gas storage report, traders and analysts were calling for a build in the low 60s Bcf area. The actual 67 Bcf build was just larger than last year’s 63 Bcf injection, but came in under the five-year average injection for the week of 88 Bcf.

As of Sept. 12, working gas in storage stood at 2,972 Bcf, according to EIA estimates. Stocks are 142 Bcf less than last year at this time and 61 Bcf above the five-year average of 2,911 Bcf. The East region injected 48 Bcf while the West and Producing regions added 12 Bcf and 7 Bcf, respectively.

Prior to Thursday’s session, some technical analysts saw Wednesday’s stunning 63.1-cent advance as the potential start of a preseason rally. Walter Zimmerman of United Energy said in his morning report that “On Wednesday the bears blinked. We compare the significance of Wednesday bullish tower [candlestick pattern] to the bullish tower of Sept.10, 2007. That tower signaled the start of the ’07 pre-season rally.”

On Sept. 10, 2007 October futures rallied 39 cents to settle at $5.891. By Nov. 2 spot futures had traded as high as $8.712.

According to Zimmerman’s figures, $8.125 at 0.618 of the $8.808 to $7.023 range is the first hurdle that needs to be cleared in order to justify a pre-season rally and $8.600 which is 0.236 of the entire $13.694 to $7.023 decline is the second.

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