November futures plunged Wednesday as traders anticipate an inventory report to not only show additions to storage well above historical averages, but also surpass the record for October. At the close November had dropped 12.7 cents to $3.489 and December had shed 6.8 cents to $3.791. November crude oil fell 24 cents to $85.57/bbl.

Traders will have a chance to hone their estimates of storage supplies with the 10:30 a.m. EDT report by the Energy Information Administration on inventories for the week ended Oct. 7. If industry estimates are correct, the storage surplus relative to the five-year average will expand and the deficit to last year will contract.

Last year at this time 90 Bcf was injected and the five-year average is 72 Bcf. IAF Advisors of Houston forecasts a build of 106 Bcf and a Reuters poll of 26 industry players showed an average 102 Bcf with a range of 83 Bcf to 112 Bcf. Industry consultant Bentek Energy utilizing its North American flow model expects an increase of 109 Bcf.

“This will become the first three-digit injection that occurs during October when traditionally storage facilities start to report smaller injections in preparation for the winter season. The previous record high injection in October was 93 Bcf, reported last year for the week ended Oct. 10,” Bentek reported.

Predictions carry risk and Bentek considers the 109 Bcf injection to have equal risk to the upside and downside this week. “Two of the largest facilities in the East Region, Dominion and Columbia Gas-TCO, reported significant losses week-on-week, which could lead to a smaller-than-forecasted build. On the other hand, the injections for the region remain strong across many other facilities in the region and with inventories still below historical levels, the injection could materialize into a larger build than currently forecasted.”

Forecasters are calling for modest warmth from the Great Plains to the desert Southwest. WSI Corp. of Andover, MA, in its 11- to 15-day forecast shows a ridge of above-normal temperatures bounded by Montana and Nevada on the west and a line from Minnesota to New Mexico on the east. “Above-normal temperatures are forecast over the interior western and north-central U.S. Below-normal readings are anticipated in the Pacific Northwest and over the southeastern U.S. Anomalies are generally expected to average between two to six degrees above or below normal.”

WSI said the forecast over the north-central U.S. was warmer than Tuesday’s but cautioned that “temperatures may trend cooler along the West Coast and warmer over the central U.S. than currently forecast. Medium-range models all feature a strengthening La Nina pattern in late October.”

Weather analysts suggest that current weather forecasts be interpreted cautiously since October is typically a transition month. “Transition months in general tend to be more volatile, but this year the transition months are extra volatile,” said Michael Schlachter, principal with Weather2000 in New York.

He said that the volatility (more frequent changes in weather patterns) “has to do with the transition from one intense season (summer) to another intense season (winter). When you have these big flip flops the atmosphere has to go through this regurgitation and you get more spiciness in the interim period.

“We obviously had a very intense summer season, and some very intense patterns are in store for the nation coming up for the winter, so the atmosphere is gearing itself up and there are a lot of swings [currently],” he said.

Analysts saw Monday and Tuesday as reflective of an oversold condition and a response to changes in the near-term weather outlook. “Prices had gotten extremely oversold and they had been in Bollinger band support for most of the last two weeks,” said Peter Beutel, publisher of Daily Oil Hedger. “When buying developed on Monday, there were very few speculative longs there to sell their holdings to would-be buyers. In fact, the opposite was the case; there were numbers of shorts looking to buy back short positions and they were having difficulty getting covered.

“After reaching a new 11-month low on Monday, natural gas prices have been advancing over the last two days. Colder temperature forecasts have clearly been the biggest factors, but the fact that prices have been so overextended on the downside — with so few holding long positions unless they absolutely needed them — has made it even more difficult for potential buyers to get the material they have wanted.

“Even though this has turned around very quickly, we do not expect it to be the start of a sustained bull move. At some point the buying will dry up and prices should come right back down, one would expect.”

Indeed it is highly unlikely that Monday and Tuesday represented any market transformative event, and Wednesday’s decline is something of a confirmation. On Monday and Tuesday November futures managed a cumulative gain of 13.5 cents; however, the December contract rose a mere 3.9 cents.

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