The January natural gas futures contract, in its first regular session as the front month, Wednesday surprised most traders by shooting nearly 40 cents higher despite ample gas inventories and the lack of any real winter chill on the immediate horizon. Word that 2 Bcf had been injected into underground storage for the week ending Nov. 20 only added fuel to the bulls’ fire.

In the minutes leading up to the noon EST storage report the prompt-month contract had risen north of $5 to $5.069 on what some market experts attributed to a round of fund short-covering. Immediately following the fresh data — which was in line with most industry estimates — the January contract knee-jerked to $5.104. Futures pushed even higher in the afternoon, climbing to a peak of $5.178 before closing the day at $5.163, up 39.7 cents from Tuesday’s finish.

Going into the report, most industry expectations were for a single-digit Bcf injection. While noting that Wednesday’s storage report was to be compared to a 54 Bcf pull for the similar week last year and the five-year average draw of 22 Bcf, Citi Futures Perspective’s Tim Evans — along with a number of industry surveys — had been expecting the Energy information Administration (EIA) to reveal a 5 Bcf addition.

“The 2 Bcf net injection for last week is slightly below the expected 5 Bcf build, but the key takeaway is that it was not a bearish surprise that would prompt a reversal of [Wednesday’s] gains,” Evans said. “The data was still bearish relative to the 22-Bcf five-year average withdrawal for the period, but that’s not the price driver here.”

According to the EIA, working gas in storage as of Nov. 20 reached another all-time record at 3,835 Bcf. Stocks are 404 Bcf higher than last year at this time and 442 Bcf above the five-year average of 3,393 Bcf. The Producing Region injected 3 Bcf and the West Region added 1 Bcf, while the East Region swung to withdrawals by removing 2 Bcf.

Commenting on Wednesday’s run-up despite supportive fundamentals, Tom Saal, a broker with Hencorp Futures in Miami, said most of the buying pressure of the last few months was backed by speculators. “The specs have been very net short for quite a few months — 150,000 positions at last count. Those are your buyers and they have been aggressive buyers. Speculators are known to be aggressive with their moves and they understand that the only way to make a profit off of a short position is to buy it.”

As for what sparked them to move on Wednesday morning, Saal said it is hard to tell. “They don’t always have a trigger. It might have had a technical flavor, but the bottom line is they were so net short someone had to go first and no one wants to be the last one out,” he said. “There is no serious cold around the country yet, but folks are still calling for a pretty cold winter.”

Saal added that the move was likely exaggerated due to the holiday week. “A lot of folks have already taken off for the holidays. There were fewer people in on Wednesday than there were on Tuesday and there will be even fewer people behind the desk on Friday. What we’re likely seeing is a few people pushing this thing around due to the light volume.”

Commenting on the market’s recent indecisiveness prior to Wednesday’s spike, Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm, said weather assumptions have played a large part. “So much of this market’s recent indecisiveness comes from weather forecasts and realities. Warmer forecasts have not actually arrived (when they were predicted) and colder weather, even when it has arrived, has not been especially cold.” He said that was consistent with a typical November. “It does not get especially cold at this time of year. For genuine winter conditions, one typically has to wait until after Dec. 15. Curiously enough, though, that presents us with an opportunity; if we do get any really cold readings before then, it will effectively steal a march on winter.”

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