Surprising most of the industry, which was expecting at least one more withdrawal, the Energy Information Administration (EIA) reported Thursday morning that 10 Bcf was injected into underground natural gas storage for the week ended April 1. After an eventful day that saw two distinct plunges lower, May natural gas futures settled at $7.366, down 19.2 cents from Wednesday.

The Reuters industry storage consensus estimate called for a withdrawal of between 5 and 10 Bcf. The ICAP-Nymex storage auction on Wednesday produced an implied market forecast of no change and the EIA’s five-year average was an 11 Bcf withdrawal. However, the actual storage report number came closest to last year’s 15 Bcf injection.

With bears to be found everywhere, May natural gas futures immediately dropped 14 cents to trade at $7.40 following the report’s 10:30 a.m. EST release. The prompt month was not finished there, however, as it notched a $7.37 trade before 11 a.m.

Just when the price free fall appeared to have been arrested and stabilized around noon at the $7.45 level, a second plunge commenced, this time spurred by neighboring weakness in the petroleum futures complex. The second natural gas downturn recorded a $7.33 low for the session before zigzagging its way to the $7.366 settle.

The sell-off in gasoline, crude and heating oil futures just before 1 p.m. EST matched up very closely with natural gas’ second move lower. May gasoline ended the session down 9.12 cents at $1.5680/gallon, while May crude ended up settling $1.74 lower at $54.11/bbl and May heating oil subtracted 5.84 cents to close at $1.5283/gallon.

“I think the fact that we got a build in the last week of the supposed heating/withdrawal season was enough to get some of the players to probably lighten up on some of their length,” said Steve Blair of Rafferty Technical Research in New York. “I could be wrong, but I don’t necessarily think there were a lot of new shorts on Thursday morning’s move down.

“I have a tendency to think that it was length liquidation because we had pretty good support around the $7.50 level that we have bounced off several times.” He noted that following the release, the prompt month penetrated that natural gas support level immediately.

“Now that we have penetrated through $7.47, our major support numbers are down between the $7.28 to $7.23 area,” he said. “I think we could drift down there, but I don’t know if we will necessarily see it [immediately].”

Blair said the $7.904 reached in Access trading at the beginning of the week could be a top for the market. “I think this market has shown several times that it is up here to stay for a little while,” he said. “We may have seen a temporary top. Obviously with this move downwards it really does look like that. However, you still have a range between the major support and resistance numbers between the $7.28 and $7.85 area.” The regular trading session high of $7.85 was notched last Friday and again this past Monday.

Blair said he would not be surprised if May tests the major support level, nor would he be surprised if somewhere shortly down the road the prompt month goes up and tests the $7.80 level resistance again.

“I don’t really think we will penetrate the resistance, but now that we have gone into injection season, that may come into play depending on how quickly we move into summer weather,” he said. Noting that New York City got into the 70 degree area on both Tuesday and Wednesday, Blair said, “If we have a situation where we bounce right from cold weather into summer, that could change the dynamics of the market quickly.”

Following Thursday’s report, working gas in storage now stands at 1,249 Bcf, according to EIA estimates. Stocks are now 218 Bcf higher than last year at this time and 227 Bcf above the five-year average of 1,022 Bcf. While the East region was still in withdrawal mode with a 2 Bcf pull, the Producing and West regions flipped the switches to inject 11 Bcf and 1 Bcf, respectively, from underground storage.

“Storage fill (April-Oct) is projected to average 9.4 Bcf/d, lower than last year’s 10.6 Bcf/d,” said Kevin Petak, director at EEA, an Arlington, VA consulting firm. He predicted that while storage levels entering next heating season will likely be over 3.2 Tcf, the current gas storage surplus is sure to be wiped out. Earlier this week, EEA increased its price forecasts going forward as a result (see Daily GPI, April 7).

Natural gas inventory fill and storage notwithstanding, natural gas prices have been joined hand-in-hand with recent moves in petroleum markets, and the broader issue of what price will it take to lower petroleum and by extension natural gas prices was touched on earlier this week. On Tuesday, U.S. Federal Reserve Chairman Alan Greenspan said that rising (crude) inventories may ease the “current price frenzy” that sent oil to record highs of $58.28 on Monday (see Daily GPI, April 6).

“The fundamentals of high energy prices are telling Mr. Greenspan that falling energy use is ‘virtually inevitable’ but he didn’t mention when, and at what price, does energy use fall off,” said Phil Flynn, a broker at Alaron in Chicago. Flynn said that Greenspan believes that high prices are slowing demand but “I am hard pressed to find evidence of it.”

He added that the amount of energy use per dollar of inflation-adjusted economic output in the U.S. has fallen by half in the last three decades, and history shows that market forces play a key role in conserving scarce energy resources. “Governments should address the energy squeeze in a way that does not distort or stifle the meaningful function of our markets,” Flynn contended.

©Copyright 2005Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.