Multiple bearish factors seemed to converge on Thursday and Friday to keep downward pressure on the natural gas cash market. As Gulf production resumed after Tropical Storm Bonnie and Hurricane Charley made landfall, traders were faced with below normal temperatures, cooling rains from the storms and a continuation of higher than expected storage injections. That last item could be the one that has the most lasting impact, according to Thomas Driscoll of Lehman Brothers.

The Energy Information Administration reported a 72 Bcf weekly gas storage injection last week, which was on the high end of expectations. According to estimates from Driscoll, gas storage injections have averaged about 1.35 Bcf/d higher than five-year averages over the last eight weeks.

Beginning in mid June when gas prices were in the $6.60s at the Henry Hub, Driscoll said he started to observe “rising relative injection rates.” There seemed to be more gas available for injection.

By Aug. 6, the EIA said there was 2,452 Bcf of gas in storage, compared to 2,222 Bcf at the same time last year and 2,335 Bcf on average over the last five years. Working gas levels in the key eastern consuming region were about 3% above the five-year average. In the producing region, storage levels were about 11% above the five-year average, and in the West, storage levels were about 2% above the five-year average.

“With storage levels more than 100 Bcf above five-year averages, this could lead to further softening in near-term prices,” Driscoll said in a note to clients on Friday. “We believe that residual fuel prices put a $5 floor under gas prices currently — but a sharp drop in oil prices would lower that floor,” he added. “We appear to be on track to end the [storage injection] season at about 3.2 Tcf of inventory — a level that could be 100 Bcf too high. We may need to see gas prices fall further to recapture 1 Bcf/d of demand (or hurricane related production shut-ins could bail us out).

“Although we are maintaining our second half gas price forecast of $6.15/MMBtu, we will be nervously watching injection rates and the weather,” Driscoll told investors.

Gas futures prices rebounded slightly on Friday and were up about three cents in early afternoon trading. Cash prices fell another 10-20 cents.

Although next week’s storage injection number should be negatively impacted by the shut-ins from the storms and the temporary price spikes on Tuesday, the weather during the week was estimated to be 15% cooler than normal, leaving plenty of additional gas available for injection.

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