Despite a third straight triple-digit weekly storage injection (114 Bcf), natural gas futures surged Thursday in three distinct waves of short-covering and speculative buying. When the dust had settled and the orders counted at Nymex, the numbers were impressive: July natural gas futures rose 36 cents to close at $5.941, just off its new one-week high of $5.95. In contrast to the first three trading days of this week, volume at Nymex was heavy Thursday, with an estimated 92,607 contracts changing hands.

The first wave of buying came at 10:30 a.m. EDT when the Energy Information Administration announced its weekly storage report featuring a 114 Bcf injection for the week ending June 13. At 1,438 Bcf, storage is now 23% below the five-year average of 1,850 Bcf and 32% below last year’s 2,123 Bcf mark. While those figures paint a bullish supply-demand picture, they are not as supportive as they were at the beginning of the injection season in April when storage supplies were a whopping 49% below the five-year average and 59% less than last year’s mark.

Versus historical injections, the 114 Bcf was large, easily exceeding the 81 Bcf from a year ago and the five-year average build of 80 Bcf. On the micro level, however, Thursday’s 114 Bcf refill was mostly bullish as it fell short of the 120-130 Bcf common range of expectations. Bulls did not waste the opportunity and quickly bid the market 32 cents higher in the 10 minutes following the 10:30 a.m. report.

As it turned out, however, that was just the beginning. After a brief sell-off to the middle $5.70s, the bulls were running again by noon. Traders were quick to blame the market’s second wind on a footnote to Thursday’s EIA release that reclassified 11 Bcf of the 125 Bcf that was reported in the prior Thursday’s report from base gas to working gas. In other words, wrote Kyle Cooper of Citigroup in a note to clients Thursday, “114 Bcf of ‘new’ gas was added last week while 11 Bcf of gas that was already in the ground was considered available for consumption rather than required for operation of the facility.”

Cooper said storage caverns require huge amounts of “base” gas to provide adequate pressure so that working gas can be withdrawn. “In fact, over 4,300 Bcf is classified as base gas…Thus, while the revision does slightly reduce the bearishness of the weekly flowing number, the fact remains that 125 Bcf of working gas was added for the week ending June 6.”

Last week, the market was put into a downward spiral when the EIA announced a record-setting 125 Bcf injection for the week ending June 6. Thursday’s 114 Bcf refill is tied for second (with the storage report for the last week of May) among the largest injections in the nearly 10-year storage data history.

After vaulting higher as traders came to realize the footnote on last week’s storage data, the market calmed in the afternoon. Some selling was even seen by profit-takers looking to head into the weekend flat. As it turned out, however, they might have done better taking profits Friday because there was one last hurrah for gas Thursday afternoon — last minute short-covering that propelled July to its $5.95 high.

Despite the significant rebound Thursday, Cooper remains an unfazed market bear. Less the 11 Bcf reclassification, a record 527 Bcf has been added to storage over the last five weeks. “In other words, this is still a very bearish supply/demand balance. The last four weeks have averaged over 130% of the five-year average of actual injections. If this pace continues, storage levels [would] reach 3,070 Bcf,” he wrote.

Cooper on Thursday suggested his clients might want to take a look at an options strategy called a bear fence, which is comprised of the simultaneous purchase of an under-the-market put and an above-the-market call. Specifically, he recommended buying an August $5.25 put and selling a $6.75 call to collect a five-cent profit.

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