November natural gas futures put in a small rebound Thursday morning following an Energy Information Administration (EIA) storage report that revealed that 57 Bcf was injected into underground stores for the week ended Sept. 28. The injection came in on the low side of most industry expectations and was well below historical comparisons. As a result, the prompt-month pushed higher to close at $7.412, up 13.5 cents from Wednesday.

Prior to the 10:30 a.m. EDT report, November natural gas was trading at $7.205. Once the report came out, the prompt-month rebounded. The contract ended up closing out the day on its high. In addition to a lower than expected injection, traders said the constant barrage of storm fears in the Gulf of Mexico is keeping the market propped up.

“In my opinion the market really did not react all that much to the lower than expected storage figure. Prior to the report, it looked like the market was trading lower as it tried to build in a bigger number than expectations,” said Steve Blair, a broker for Rafferty Technical Research in New York. “The reason for the uncertainty this week was because people were trying to figure out how much gas was off-line in the Gulf of Mexico due to storms. From what I was hearing, people expected about 4 Bcf/d to be shut-in over that four-day period last week, but apparently it was more than that. In addition, there was also talk about pipe constraints out of the Rockies, which impacted how much gas was actually able to get to the East region.”

Looking at the storm radar, Blair said that while the current system in the Gulf really isn’t scaring anyone, the constant string of storms is keeping traders on their toes. “Forecasters are downplaying the ramifications of the current system, noting that they don’t think it can strengthen much,” he said. “Whatever happens, it looks like it will hit Louisiana, so as long as it stays weak it likely won’t make any problems on the production rigs. It certainly would be more significant if it was headed toward the Houston Ship Channel. Now the storm system out around the Bahamas could be a different story. While these storms continue to fizzle, this consistent one after the other procession of storm systems is keeping the potential for a big one alive, which is obviously keeping this market propped up.

“I think this market is looking for dips to be a buyer on. The bulls are in charge here as there is definitely an upside bias,” he added. “While there are a lot of fundamental factors that should be pushing this market lower, storm potential is more than likely going to continue to hamper any sort of significant downside move.”

AccuWeather.com meteorologist John Kocet confirmed Thursday that the current Gulf system is not very impressive. “We have been watching this disturbance all week, but it has just about run out of time to do anything,” he said. “When it moves into the west-central Gulf Coast Friday, it will produce some heavier showers and squally winds but probably nothing worse than that. In a nutshell, no big deal here.”

However, he noted that the system located in the southeastern Bahamas could be on a path that is “ripe” for development. “Wind shear will not be an issue, and the sea water is still extremely warm,” Kocet said. “This could become the next named storm before the weekend is through, and it could mature into a hurricane once over the Gulf of Mexico next week. Coming up with a precise track is not possible at this early stage, but once developed the storm could easily stay on a westward course that would take it into Mexico.”

Looking at the market’s current dynamics, producers might want to take advantage of current high prices, risk managers say. “To those who own natural gas, why aren’t you laying off some of your price risk [because] these numbers are good?” asked a New York energy risk manager. “If for some reason there is a normal or warmer than normal winter, usage and demand will fall and prices will most likely retreat. Why not take advantage of numbers that are probably outside of your budget range?”

He added that factors such as ample gas in storage, people not buying as many new homes and a potential weakening of commercial demand, stemming in part from difficulties in the sub-prime mortgage market, were all factors that may reduce demand for natural gas. As far as upcoming winter weather he added, “You always have to plan on normal weather because if you plan on the market going crazy because of cold weather you are just rolling the dice. I would be sensible here.”

Reverting back to the storage situation, other market watchers agreed that the shut-ins in the Gulf last week and the pipe constraint in the Rockies teamed to throw most storage estimators off. “The 57 Bcf net injection was clearly in the bullish end of the range of expectations,” said Tim Evans, an analyst with Citigroup in New York. “It appears that flows from the Rockies have been curtailed related to pipeline maintenance. Both the production losses related to Tropical Depression #10 (about 8.0 Bcf) and these pipeline issues may not be ongoing impacts, so our forward outlook may not change all that much based on this report.”

Despite the smallish injection, the current storage level on the whole is far from lacking. At 3,263 Bcf, current working gas storage levels are only 198 Bcf below last year’s 3,461 Bcf record, which was set in the storage report for the week ended Oct. 20, 2006. As of Sept. 28, current stocks are 54 Bcf less than last year at this time and 227 Bcf above the five-year average of 3,036 Bcf. The East region injected 33 Bcf for the week while the Producing and West regions added 14 Bcf and 10 Bcf, respectively.

A Reuters survey of 22 industry players had been looking for a 67 Bcf build, while Bentek Energy’s Flow Model indicated an injection of 58 Bcf. Last year saw a 74 Bcf injection for the similar week and the five-year average build is 68 Bcf for the week.

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