Natural gas futures were down modestly in midday trading as traders took a breather following a hectic three days of volatile price action in which the November contract spiked more than 90 cents. Not even the weekly release of fresh natural gas storage inventory data, featuring a 64 Bcf injection, could tilt the scales in either bulls’ or bears’ direction, leaving the market to trade mostly sideways Thursday morning.

At 11:55 a.m. (EDT), November traded at $7.59, down 3.3 cents. However, the prompt month came to life in afternoon trading. November ran up to a new high for the second consecutive session at $7.85 as of 1 p.m before settling at $7.697, up 7.4 cents on the day. Thursday marked the fourth consecutive day that November closed higher.

According to the Energy Information Administration, storage inventories rose to 3,223 Bcf on Oct. 15. The injection figure was neutral as it fell neatly between the five-year average injection of 54 Bcf and the year-ago build of 85 Bcf. Consensus estimates had called for a refill in the 54-70 Bcf range and the ICAP-Nymex Storage Option Auction had targeted an at-the-money injection of 67 Bcf.

Jan Stuart, a broker with Fimat USA Inc. in New York, said the issue is not the level of gas in storage. “This report was insignificant; it was right inline with expectations. It has been clear now for a couple months that storage was going to reach record levels by the end of the injection season.” In November of 2001, gas in underground storage set a record at 3,254 Bcf, a level likely to be surpassed with next week’s report.

The only sensible way right now to explain the $8.50 winter price for natural gas is by looking at the price of alternate fuels, Stuart said. “We have a floor at coal and a ceiling at heating oil… Gas right now is fully priced at the ceiling.” He qualified this statement by noting that while the price of heating oil at $1.55 a gallon equates to a natural gas price of roughly $11.50-$12.00 per MMBtu, there exists a locational differential that discounts that natural gas price $2-3. “That puts you at about $8.50-9.00 for winter,” he said. As of Thursday’s close, the five-month winter strip for natural gas averaged $8.724.

While that might put Stuart in the bears’ camp, he said the “only way to be bearish on natural gas right now is to be bearish on the price of heating oil. When it gets cold this winter, the U.S. will need to import heating oil from the global market. The only way that can happen is if [the domestic] price of heating oil is more than the price in other places.” The supply of diesel fuel in Europe is especially tight right now, making it more expensive than in the U.S.

Rafferty Technical Research’s Steve Blair added that the pull of the petroleum complex can not be discounted. “The fact that heating oil prices are so high, it is almost naturally bringing natural gas with it,” he said.

Commenting on Wednesday and Thursday’s price action, Blair said, “[Wednesday’s] close above that $7.55 level — by our technical numbers — was a very important close to the upside. It seems that every once in a while, natural gas futures takes a little profit-taking break to the downside, then the market seems to want to continue the move upward. From a technical perspective, until the upside bullish trend is broken, it’s hard to fight it.

“I think most of this is obviously a technical move. I really don’t think that anything has changed on the fundamental side,” he continued. “The storage number Thursday, even though it was within expectations, was a pretty good injection for Oct. 15. With the current storage level standing at 3,223 Bcf with two weeks left in the traditional injection season, there isn’t much room for doubt that we will bop right through the 3,254 Bcf record storage level.” However, Blair warned that the high storage level was long ago factored into the market.

“Another interesting trend involves the spread between November futures and the rest of the winter months,” Blair said. “Prior to today, we spent two days with the front-to-the-winters spread collapsing a bit, and now they widened back out to where we were before.” While November picked up 7.4 cents in Thursday trade, December through March added between 18.8-23.1 cents.

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