After moving above $4 in early morning trade for the first time in exactly six weeks, front-month natural gas futures values ducked lower temporarily on news from the Energy Information Administration (EIA) that 95 Bcf was injected into underground storage for the week ended May 1. However, the bulls regained control soon after as June futures ended up closing out Thursday’s regular session at $4.081, up 19.4 cents.

The front month contract was trading at $3.946 just prior to the 10:30 a.m. EDT report. Immediately following the report, June futures hit a low of $3.820 before resolving higher.

“What I’m seeing in the natural gas futures market is not pretty, mainly because it is very difficult to explain the recent strength,” said Steve Blair, a broker with Rafferty Technical Research in New York. “It is amazing to me that the storage build can come out at 95 Bcf — which is a couple billion cubic feet above expectations and well above the historical comparisons — and the market continues to move up.”

The broker said current fundamentals are just not meshing with the week’s rally. “The year-over-year overhang now sits at nearly 500 Bcf, and I am already hearing injection expectations for the week ended May 8 that are in the neighborhood of 100 Bcf,” he told NGI. “We are a few weeks early for these kind of injections and the overhang is going to continue to get bigger and bigger. We have a lot of gas and it is being proven to us on a weekly basis, but futures values are climbing here, so for some reason the storage overhang doesn’t mean anything.”

Blair said the only thing he can conclude about the recent strength is that speculative money has come back to commodities. “The equity markets have been up, so maybe some of these funds have been making some money in other markets and have decided that natural gas is an attractive buy down around $3,” he hypothesized. “I think we’ve got some hedge fund activity back in the market. What else can we conclude here? It’s not very hot and industrial demand has not really improved, so nothing on the fundamental side has really changed.”

While not ready to say the downside move has been completed, Blair noted that the current price level sits very close to a pivotal number. “I think $4.150 is a very important number. If we can penetrate it and close above it, that could be the signal that we’ve seen the end of the bear trend that futures have been in since last September,” Blair said.

Before the report’s release, Citi Futures Perspective analyst Tim Evans had been expecting a 100 Bcf build.

“The 95 Bcf net injection is neutral relative to consensus expectations and above the 69 Bcf five-year average, still adding to the year-on-five-year average surplus, now at 362 Bcf,” said Evans. “However, at the same time, we consider this a constructive figure, lower than our own forecast and tending to confirm at least some decline in supply relative to the prior report. We’ll be trimming our storage outlook for the upcoming reports based on this figure.”

Ahead of the report, a number of traders and analysts were expecting a 93 Bcf injection. A Reuters survey of 24 industry players produced an injection range of 85 Bcf to 109 Bcf with an average build expectation of 93 Bcf. Bentek Energy’s flow model also indicated a 93 Bcf injection.

In addition to besting the five-year average, Thursday’s 95 Bcf injection was also much larger than last year’s 68 Bcf build.

According to the EIA, working gas in storage stood at 1,918 Bcf as of May 1. Stocks are 491 Bcf higher than last year at this time. For the week, the East region injected 58 Bcf while the Producing and West regions chipped in 26 Bcf and 11 Bcf, respectively.

Natural gas bulls can take some comfort in the fact that many traders are taking their cues from the broader energy and financial markets. An Oklahoma City-based broker who uses moving average trading models to guide his buying and selling of both crude oil and natural gas said his crude oil system gave a “buy” signal on May 4. “I think you are seeing sympathetic trading in natural gas following crude oil. Crude is trading on the equity markets, and it’s just the feeling that as the economy improves, it will change the demand for energy products. Natural gas is part of that,” he said. His natural gas trading program changed from “sell” to “neutral” when June futures on Wednesday surged 27.2 cents to settle at $3.887.

June crude on Thursday added 37 cents to close at $56.71/bbl.

©Copyright 2009Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.