There were no expiration day heroics for bulls Wednesday. Despite the bullish combination of extremely oversold conditions and modestly constructive storage data, natural gas futures tumbled again as traders used the September contract as a battering ram to reach a new 19-month low. Including Wednesday’s 12-cent decline and $2.295 close, the September contract suffered losses in each of its last 10 trading sessions, trimming a whopping $1.17 or 34% from its Aug. 15 value.

As expected, the futures market sifted lower yesterday morning as traders took the path of least resistance. However, unlike losses notched over the past two weeks, the selling Wednesday was more cautious as many traders were seen hedging against the potential for a short-covering rally upon the release of new storage data. By 2 p.m. EDT the September contract was just 2.5 cents weaker at $2.38.

According to the American Gas Association, 76 Bcf was injected into the nation’s underground storage facilities during the week ending Aug. 24, raising total working gas levels to 76% full at 2,495 Bcf. Compared to consensus estimates of 78-90 Bcf, the injection was slightly on the bullish side. However, versus historical figures, the report was bearish as it easily exceeded both last year’s 52 Bcf injection as well as the five-year average refill of 66 Bcf. Storage now stands 351 Bcf above year-ago levels and 208 Bcf more than the five-year average.

In its usual schizophrenic manner, the natural gas futures market spiked and then plummeted following the release Wednesday afternoon. By 2:40 p.m. EDT the September contract was down 7.5 cents for the day at $2.34 after pressing to a new 19-month spot low at $2.31. Another wave of selling ensued, dropping the contract to its final resting place just beneath the $2.30 mark.

Considering the market’s unappreciative reaction to the AGA’s decision to wait a week before revising storage data last Wednesday, it comes as no surprise that traders were a bit cynical of the report yesterday. When asked how he viewed the 76 Bcf injection, a Houston-based trader said it was plausible, but added that “it didn’t matter what data the AGA received, because [for their sake] they were going to report a number near 80 Bcf, regardless.”

Looking ahead to October’s first day as spot contract, many traders believe the opportunity exists for a rebound. While remaining firmly bearish in the long term, Jay Levine of Advest Inc. does not rule out a pop to the upside, “purely for technical reasons.” As a result, he believes one might be rewarded by buying the October contract on a move to the $2.25-30 area. “There is already a huge open interest in October of 77,000 positions of which the preponderance is likely speculative shorts. Long-term fundamentals remain grizzly, but I would look for a short-covering rebound in the near term.”

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