August natural gas retreated Thursday as traders acknowledged a robust increase in gas storage even as major energy markets were subjected to brutal heat. At the close August had fallen 10.5 cents to $4.395 and September had shed 10.7 cents to $4.362. August crude oil added 73 cents to $99.13/bbl.

The Energy Information Administration (EIA) reported that natural gas storage increased by 60 Bcf for the week ended July 15, whereas a number of analysts and consultants had predicted a lower figure. Analysts aren’t prepared to cite the specific factors leading to a somewhat greater-than-expected increase in natural gas storage injections, but Kyle Cooper of IAF Advisors in Houston said, “The storage numbers the last three weeks have been above expectations, indicating more bearish balances than what had been predicted. Is it less demand? Is supply finally showing up? It’s hard to say, but the storage numbers are the balance between supply and demand and despite the heat the injections have been pretty strong. It would certainly be the expectation for even greater builds once the heat goes away. That’s why the market is failing to rally. The injections are there despite the heat.”

Cooper cited another factor that once alleviated could result in further increased production. Regarding the active shale plays, much work needs to be done to bring wells to final completion. “It’s a manpower and crews issue. There are over 3,000 wells that have been drilled but not completed and hooked up simply because there’s not enough personnel. There’s always some backlog [to getting wells on production], but I think the normal backlog is between 1,000 and 1,500.”

Backlogs notwithstanding, Cooper is still looking at a season-ending inventory “between 3.63 Tcf and 3.65 Tcf because it has been so hot. That’s right at the five-year average. Throw out the last two years and that’s actually very, very high.”

Going into the report two weeks of misses to the low side suggested that industry observers might temper their estimates to account for what could be over-injections. One school of thought had it that the EIA over-reported the figure and this week’s report would have an adjustment. Tim Evans at Citi Futures Perspective saw it a little differently and thought the 84 Bcf build reported July 14 and the 95 Bcf increase reported a week earlier may actually reflect increased supplies.

“We’re anticipating 72 Bcf in net injections on strong supply that has been offsetting much of the impact of warmer-than-normal temperatures. There are some lower estimates for an injection of less than 60 Bcf in circulation, but we note such whisper numbers would also make a lower figure look somewhat less supportive since at least some segment of the market would view a lower injection as expected, and not so much as a bullish surprise.”

Cooper was somewhat at the low end of estimates. He predicted a 54 Bcf build, and Jim Ritterbusch of Ritterbusch and Associates expected an increase of 55 Bcf. A Reuters survey of 25 analysts showed an average 62 Bcf build with a range of 50 Bcf to 80 Bcf, and industry consultant Bentek Energy, utilizing its North American flow model, predicted an increase of 58 Bcf. One year ago 55 Bcf was injected, and the five-year average stands at 67 Bcf.

Bentek thought the number could have been lower still. “Cooling demand due to warmer-than-normal temperatures in most of the U.S. caused a large drop in storage injections in the East and Producing regions during the week ended July 15.” The 58 Bcf injection prediction has the most risk to the downside “as extreme heat covered large-population states during this storage week.”

Market technicians saw a short-term bullish tone to the market. “The pullback from $4.612 so far counts like an ABC. The 14-bar intraday RSI [Relative Strength Indicator] bounced off oversold territory,” said Brian LaRose, analyst with United-ICAP. “The 100- and 200-bar intraday RSI readings are sitting just above 50, all very good reasons for the bears to proceed cautiously. However, to indicate a correction has ended, $4.574 will need to be exceeded. Accomplish this and fresh highs should be anticipated.”

Weather-wise aggressive heat is forecast for the six- to 10-day period. In its morning report Commodity Weather Group of Bethesda, MD shows a dominant heat ridge bounded by Minnesota, New York, South Texas and Nevada. “Severe heat is descending on the East Coast today [Thursday] and tomorrow with extreme heat index levels creating the most uncomfortable conditions of the year so far,” said Matt Rogers, president of the firm.

Rogers’ data shows the heat likely to increase. “The latest forecast trends are getting stronger with another heat event for the Midwest and East by the middle to end of next week. As of right now, this one is expected to be weaker than the current event; however, there is concern that as we get closer, it may strengthen and ultimately rival it again. Some cooling arrives in the 11-15 as the heat goes West, but like the last ones, the cooling appears temporary.”

At 5.p.m. EDT Thursday the National Hurricane Center (NHC) reported that tropical storms Bret and Cindy were in the Atlantic headed to the northeast and not a threat to the U.S. NHC said it was also following a tropical wave 750 miles east of the Windward Islands.

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