July natural gas futures gained ground Thursday in spite of a government inventory report showing injections above trader expectations and inventories well above historical norms. A strong performance by July crude oil, which more than made up for Wednesday’s $2.43/bbl drubbing, also helped the bullish cause.

July natural gas gained 4.4 cents to $3.810 and August added 5.4 cents to $3.970. July crude oil added $2.69 to settle at $68.81/bbl. The Dow Jones Industrial Average rose 74 points to 8,750.

The Energy Information Administration in its 10:30 a.m. EDT release of natural gas inventory data reported that for the week ending May 29 storage increased 124 Bcf, well ahead of Reuters and Bloomberg polls, which showed expected gains of 114 and 117 Bcf, respectively. The 124 Bcf build put working gas inventories at 2,337 Bcf, 30.5% ahead of last year’s levels and 22.1% higher than the five-year average.

Short-term traders mused that “the natural gas market looked at the dark side and walked away,” said a New York floor trader. He added that he was puzzled by the day’s price action since the inventory report was so negative. “You get a lot of buying on the dip, and it was just an odd experience.”

He noted that traders were looking for the market to go to $2.80, but “it just doesn’t want to go there. If anything you want to buy it against the $3.50 area, and at some point I think the market works higher.”

Longer-term observers also see the market poised to advance. “I think the combination of a technically oversold market with the onset of the hurricane season skews the risk-reward to the market going higher,” said Ed Fraim, vice president of ICE Data, a unit of IntercontinentalExchange (ICE).

“I think there is a lot less risk to the upside than there is to the downside. There are a lot of opportunities for traders to do risk reversals, the simultaneous purchase of call options and the sale of put options. Since the beginning of the year risk reversals have been popular across all energy commodities. I look at natural gas on an energy basis and it is undervalued,” he said.

On Friday traders will gain important insight into the strength of the economy with the all important May Employment Report. The 8:30 a.m. EDT release by the Labor Department is expected to show May payroll losses totaling 530,000, a slight improvement from April’s 539,000 job losses. Unemployment is expected to jump to 9.2%, up from April’s 8.9%. Improvement in the employment situation could prove bullish not only for equities, but also for natural gas demand and prices, analysts said.

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