November futures expired on a weak note Thursday as traders factored in a greater-than-expected increase in storage inventories. The report by the Energy Information Administration showed an increase of 92 Bcf, about 7 Bcf greater than what traders were looking for. At the end of trading November had shed 6.6 cents to $3.524 and December had lost 1.1 cents to $3.764. December crude followed an ebullient equity market higher and gained a stout $3.76 to $93.96/bbl.

Technical traders noted that the now-spot December gas contract looked even softer than the expiring November one. “The December chart patterns looks a little weaker than November. December made a low of $3.724, but it would have to get over $4.06 for me to have any interest in getting long,” said an Oklahoma City analyst.

The trader’s trend-following model has been short for quite some time, and he advised the way to trade the market would be to sell up against the model downtrend line, which currently is at $4.06. “It would look like a trend change if it can close above that level. Until then sell rallies. That has been a winning trading strategy for quite a while.

“You are not seeing the wild swings as in the crude oil market.” Natural gas “is a much more orderly market. You can step in there without expecting a big move one way or the other. If you just try to scalp the market for 10 cents, it looks very doable,” he said.

Technical analysts see the market flirting with significant technical support. “We had major technical support at $3.50 in the November contract and around $3.70 in December,” said Steve Blair, analyst with Rafferty Technical Research in New York.

“I don’t think much has changed in the last week as to what may or may not move the market. Storage continues to run high, there are no tropical storms in the Gulf yet, there is less and less if any air-conditioning load, and industrial load is still weak. I don’t see any reason for this market to get back anywhere near $4, and I think the market will hover around these lower levels and drift back and forth. I see a market somewhat directionless, but from a fundamental perspective I would think the market has a bias to the downside.”

The 10:30 a.m. EDT release of storage data showed fundamental factors in line with a downside market bias. Last year 74 Bcf was injected at this time and the five-year average stands at 47 Bcf. Not only did the weekly inventory report show a storage build greater than seasonal and historical norms, but it also surpassed the expectations of most market experts.

For the week ended Oct. 21 Ritterbusch and Associates forecast an increase of 92 Bcf, yet a Reuters poll of 26 market participants revealed an average 84 Bcf with a broad range of 65 Bcf to 111 Bcf. Houston-based IAF Advisors predicted a build of 87 Bcf.

Tim Evans of Citi Futures Perspective in New York thought the stout injection estimates might actually be somewhat bullish. He predicted an 82 Bcf build and said, “A net injection on that order of magnitude would be bearish compared with a 74 Bcf date-adjusted increase from last year as well as the 47 Bcf five-year average. In a sense, though, the higher the expectation, the more bullish it is for prices, since it suggests the market may have already discounted a bearish outcome. This creates more room for either a supportive smaller-than-expected build in the storage data itself or a ‘buy the news’ reaction once the data is released.”

Study of heating requirements for the week ended Oct. 22 indicated that an above-average storage build might indeed be the case. Heating load requirements in populous eastern and Midwest energy markets showed below-normal requirements and indicated that the storage figure Thursday could be above-normal. The National Weather Service (NWS) for the week ended Oct. 22 calculated mainly below-normal heating loads from Maine to Wisconsin.

Next week’s storage report may also climb above historic injection levels if using a study of heating load proves correct. For the week ending Oct. 29 NWS forecasts that New England should experience 115 heating degree days (HDD), or 13 below normal, and the Mid-Atlantic should see 97 HDD, or 16 below its seasonal tally. The Midwest from Ohio to Wisconsin is forecast to see 102 HDD, or 20 below normal.

For the week ending Oct. 29 government figures show that last year 67 Bcf was injected and the five-year average is a 35 Bcf increase.

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