Natural gas prices slipped lower for the third-straight session Wednesday as traders continued to lighten their longs ahead of the release of weekly inventory data Thursday. Similar to the early weakness exhibited on Monday and Tuesday, the market experienced its heaviest selling in the morning Wednesday, forcing bulls to battle back in the afternoon from a deep deficit.

The November contract received the biggest late-day buying boost, but it was still not enough. It closed at $5.431, down 4.4 cents for the session. By comparison, the winter strip lost 8.8 cents to finish as $5.721 and the 12-month strip ended down 7.4 cents at $5.19. At 67,657 estimated volume was moderate, but down considerably from the 90,000+ level achieved both Monday and Tuesday.

Profit-taking has been the soup du jour at Nymex this week as traders have sought to alleviate overbought conditions wrought by last week’s rally. As prices have ducked below some key price levels, additional selling has been seen by weak longs heading for the exits.

However, technical factors are not solely to blame for the 22-cent price slide this week. Also at work have been traders’ expectations for another large injection when the Energy Information Administration releases updated storage data Thursday morning. The range of market estimates call for an injection of 50-95 Bcf, with most predictions coming in the 80-85 Bcf area. If realized, a number of that magnitude would pale in comparison with the year-ago injection of 48 Bcf as well as the five year average refill of 51 Bcf.

At 2,863 as of Oct. 3, storage was just 37 Bcf less than the five-year average. But while storage injections have continued at a torrid pace through late summer and early fall, price levels have actually moved higher during that period. Market watchers agree that higher prices in September and October are normal as concerns over what to expect in the upcoming winter grow. However, they are also quick to note that the apparent supply excess in this market will not go away even if this winter shapes up as slightly colder than normal.

“The bearish storage trend since May will not shut off the moment storage hits the [five-year] average,” said Tim Evans of IFR Pegasus in New York. On the contrary, the surplus driving the storage trend will continue, extending the injection season a week or two later, and dampening the withdrawal rate for any given weather pattern,” he said, noting it was difficult to find any fundamental justification for prices to rally.

Kyle Cooper of Citigroup agrees, and points to mild weather across the country this week as a harbinger of another large refill next Thursday. Further down the road, it is difficult to know how much gas the market will inject, but Cooper said that the five-year average build also becomes an easier hurdle in the third week of October (36 Bcf injection). “It is quite possible that natural gas storage levels exceed the five-year average this month,” he said.

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