Despite a Category Two hurricane currently in the Gulf of Mexico, significant draws in petroleum inventory and expectations of a smallish natural gas storage injection report Thursday morning, energy markets on Wednesday retreated. October natural gas futures dropped 14.2 cents on the day to close at $7.393.

“The market does not seem to really care about Hurricane Ike,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Natural gas storage levels seem to be comfortable enough to weather a couple of weeks of reduced Gulf of Mexico output. Now if a significant amount of damage to the infrastructure is discovered after Ike passes, then that is a whole different story.”

Blair noted that there really “was not a whole lot going on” in the energy markets Wednesday. “The petroleum sector really did not react to the huge draws in inventories that the Department of Energy showed. In fact, crude kept heading lower,” he said. October crude ended up dropping 68 cents to close Wednesday at $102.58/bbl.

“Natural gas prices remain pretty comfortable in this $7 area,” he added. “We continue to trade back and forth between technical numbers. We have been showing major support and resistance numbers at $7.015 and $7.600 for a while now and we continue to trade back and forth between those price levels. If Ike passes and production ramps back up quickly, we’ll start getting closer to the lower end of the price range.”

While Ike was expected to miss much of the Gulf’s crucial energy infrastructure (see related story), the storm was not expected to be as friendly to the western coast of Texas. “This is one of those storms not to be taken lightly. Ike is going to be a big, bad hurricane, quite capable of unleashing devastation where it hits,” said John Kocet, a senior meteorologist with AccuWeather.com. “The storm is going to feed from the heat energy stored in the Gulf of Mexico. The heat is transferred into the atmosphere through evaporation and then condensation. The release of this energy into the developing storm is what creates the large pressure gradient that in turn drives the powerful winds.”

Kocet said Ike is likely to become a major Category Three hurricane within the next 36 hours, and it could climb to Category Four before slamming into the mid-Texas coast early Saturday.

Looking closer at Thursday morning’s storage report, it appears evident that gone are the weeks of 90 Bcf and 102 Bcf injections. Golden, CO-based Bentek Energy said its flow model indicates an injection of 46 Bcf, bringing stocks to 6% below the five-year high and 2.5% above the five-year average. The research and analysis firm said it expects a 48 Bcf injection in the East region and an 11 Bcf build in the West region, with the Producing region withdrawing 13 Bcf.

With shut-ins related to hurricanes Gustav and Ike throwing off injection rates, it would appear to be an uphill battle to reach any sort of end-of-injection season storage level record. “Last year’s injections averaged 54 Bcf between now and the end of the injection season, and the five-year average is 59 Bcf for the same time period,” Bentek said in a Wednesday report. “If injections average 72 Bcf for the next nine weeks, inventories will reach a new high.”

The number revealed by the Energy Information Administration on Thursday morning at 10:35 a.m. EDT will be compared to last year’s 56 Bcf build and the five-year average injection of 78 Bcf.

“If we do get a 46 Bcf injection, that is not too great of a difference from last-year’s 56 Bcf build,” noted Blair. “It would only add 10 Bcf to the current deficit, so it really should not hit futures prices that hard. I am actually surprised we are expected to see as big of an injection as people are expecting.”

Heading into Wednesday’s regular trading session, some market technicians believed that October futures need to close about 15 cents higher than Tuesday’s $7.535 finish if the case for a market bottom was to have any legs. “Tuesday’s trend was neutral with $7.170 support and $7.675 still pivotal resistance,” said Walter Zimmerman of United Energy. Traders got a wild ride Tuesday. Zimmerman noted that in electronic trading Tuesday October futures fell to $7.122 but failed to break down, then rallied to $7.640 but failed to break up. “If this is bottoming action, then it is time for natgas to break above the $7.675 must hold [resistance] for the bears. Our next two steps up from there would be to $7.805 and then $8.225,” he said in a Wednesday morning note to clients.

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