With the middle-of-the-road natural gas storage report unable to exert any influence on the natural gas futures market, the newly-minted prompt month was left with no other choice than to follow big brother crude’s lead lower in Thursday trading.

The July natural gas futures contract reached a low on the day of $6.465 soon after the EIA’s storage report revealed an 89 Bcf injection for the week ended May 21. However, a number of market-watchers said that the storage number, which was generally within the industry consensus, was all but lost on Thursday, as crude futures ruled the direction of the day.

July natural gas futures settled at $6.573, down 15.9 cents on the day, while July crude futures fell under $40, closing at $39.44, down $1.26.

“Natural was literally just riding right along with crude all day long,” a Washington, DC-based broker said. “Looking at the charts, it’s hard to even see any point where the two commodities were divergent Thursday.” The broker noted that crude’s sell-off could be tied to two stories circulating on Thursday, one reporting that the Saudis really are going to increase production this time, and one reporting that the U.S. government may consider relaxing clean air standards on the gasoline side again.

As for the storage report non-event, the broker said he believes that the EIA data likely got lost in the crude action Thursday. “The time when storage came out was also the teeth of the sell-off on the liquid side,” he said. “I think everyone else was very busy looking at what was going on with crude oil at that time. Whether or not [the storage number] was slightly above or below the expectations of traders was drowned out with how fast crude was sinking at that time.

Looking ahead, the broker said he would be interested to see if the market can regain $6.65 on Friday. “I would need to see that first on my charts to say that the bulls had completely regained control of the market.”

Tim Evans of IFR Energy Services said that it was interesting that the market seemed less prepared for the drop in crude oil prices than in the storage data, “responding to it as more of a shock and then seemingly fighting to trim the losses, as if it had the fundamental strength to go higher on its own.” He noted that while it might have the strength to go higher, there needs to be “some serious heat in a hurry in order to sustain its faith in strong air-conditioning demand this summer. Otherwise, it is vulnerable to a correction, particularly if crude oil does trend lower.”

The storage injection brought current stocks to 2 Bcf below the 1,479 Bcf five-year average and 392 Bcf higher than last year at this time. Last week, stocks were 15 Bcf below the five-year average and 398 Bcf higher than last year.

The 89 Bcf build compares with last year’s 95 Bcf build and the five-year average build of 76 Bcf. Kyle Cooper of Citigroup had called for a build between 84 and 94 Bcf. Prior to the release, Cooper had noted that temperature models indicated that this report would be almost identical to last week’s 85 Bcf build, while actual pipeline data suggested a much larger build than last week.

On Wednesday, Evans thought the report might show a build of 90-100 Bcf, creating a small year-on-five-year surplus. He added that a slight surplus over the five-year average might further erode psychological support, making it that much harder to argue that the current market is tight.

The EIA reported that working gas in storage now stands at 1,477 Bcf. For the week ended May 21, the East region led the charge by injecting 55 Bcf into underground storage. The Producing region and the West region contributed 22 Bcf and 12 Bcf, respectively.

Effective at the close of business Friday, Nymex will increase margins on March 2005 through 2010 natural gas futures and swap gas futures contracts. Though margins on the spot through eighth months of the Henry Hub delivered futures and swap futures contracts will remain unchanged, the exchange is as much as doubling the requirements for the back months.

Nymex will close at 1 p.m. (ET) Friday and will be closed Monday in observance of Memorial Day.

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