September natural gas fell Thursday as the market digested a storage report showing additions to inventory above what the market was looking for. The Energy Information Administration (EIA) reported a build for the week ended Aug. 12 of 50 Bcf while traders were expecting about 5 Bcf less. At the close September had fallen 4.1 cents to $3.892 after trading as low as $3.843 and October had given up 4.4 cents to $3.899. September crude oil followed free-falling financial markets and dropped $5.20 to $82.38/bbl.

One trader noted a sharp rise about 30 seconds before the EIA figure was released. “I wonder what this was — computer trading gone awry; did someone have information beforehand? I mean, what was this?” he queried. “The $3.843 bump took out the previous low so I think we are going to grind down now and fill in the previous gap.”

One possible explanation is that much of trading is conducted by computers. “Buy 1,000 lots if the number is equal to or less than 40 Bcf, sell 1,000 lots if the figure is greater than 40 Bcf,” etc. Liquidity typically comes to a standstill moments before the release of the storage figure, and all it takes is one missed keystroke to temporarily skew an illiquid market. Also, the price at the time may have been attractive enough and within a buyer’s price parameters that execution of the order was more important than taking the risk of an unfavorable fill should the report have come in bullish.

The above-expectation build narrowed the deficit to last year to 175 Bcf from 197 Bcf a week earlier and the five-year shortfall decreased to 73 Bcf from 80 Bcf the prior week. With 11 weeks left in the traditional injection season ending Oct. 31, builds will need to average 61 Bcf weekly to reach 3,500 Bcf and 83 Bcf to make it to 3,750 Bcf.

Analysts interpret the figure as showing “that U.S. natural gas production may, incrementally, still be on the rise, although the refill was really within the usual margin for error,” said Tim Evans, analyst at Citi Futures Perspective in New York. “The build was also modestly above the 43 Bcf five-year average for the period, slightly bearish in that regard and also a further disappointment that warmer-than-normal temperatures are not enough to produce tightness.”

Forecasters are calling for warmer temperatures but within a framework of seasonally lower highs. “The forecast has turned quite a bit warmer across the northern tier, erasing many of the cooler adjustments made during the past two days,” said MDA EarthSat in its six- to 10-day forecast. “The biggest of these changes came during the first half in the Midwest and during the mid to late period in the Northeast where aboves [higher-than-normal temperatures] arrived both sooner and stronger. Given the falling normals in late August, this surge of warmth should mostly provide widespread 80s for highs, though some lower 90s could also verify. As the core of the warmth shifts northward, a weakness will develop in the South that may finally allow for slight moderation in Texas late.”

The release of inventory data by the EIA gave traders a better idea of what to expect supply-wise at the traditional October end of the injection season. With storage levels now at 2,833 Bcf, conventional wisdom has it that robust production resulting in many instances from booming shale plays will close the gap and provide an adequate cushion.

Many estimates prior to the release of the report were lower than the 50 Bcf figure. Tim Evans at Citi Futures Perspective called for a 46 Bcf build as did Jim Ritterbusch of Ritterbusch and Associates. Industry consultant Bentek Energy, utilizing a statistically enhanced North American flow model, was expecting an increase of 43 Bcf.

Bentek said it thought there was equal risk to a higher or lower forecast. “Last week’s big miss leads to some uncertainty on EIA’s forecast. Based on historical behavior between EIA and Bentek’s model, following a bias period, both models coincide again when more normal demand returns to the market,” the firm said in a report. It predicted a build of 48 Bcf in the East Region and 10 Bcf in the West Region, with a pull of 15 Bcf in the Producing Region.

From a technical perspective, natural gas futures are looking over the edge of a cliff if they haven’t already begun their descent. It’s “showtime” for the bulls. “No change, still bottom or else for the bulls. Fail to march immediately higher from this vicinity and fresh lows should be expected,” said Brian LaRose, technical analyst at United-ICAP. “How low can natgas fall in this scenario? Bullish case: natgas will only test the $3.693-3.591 area. Bearish case: a drop to $3.200-3.196-3.193-3.125 is needed before any recovery. Most bearish case: natgas is headed to $1.964-0.876.”

The National Hurricane Center (NHC) reported at 2:05 EDT Thursday that a system 200 miles east-northeast of Nicaragua was beginning to develop circulation and pressures were declining. It said the system had an 80% chance of developing into a tropical cyclone in the following 48 hours. NHC said it was also following a “well defined” tropical wave west of the Cape Verde Islands. It said it was moving to the west at 15 mph and had a 10% chance of developing into a tropical cyclone in the next 48 hours.

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