Even though the natural gas storage report for the week ended Oct. 3 revealed an injection 20 Bcf larger than historical comparisons for the week, November natural gas futures prices, after an initial knee jerk lower, were fairly even keel in Thursday trade. Taking a break from declines, the prompt-month natural gas contract gained 8.3 cents to close at $6.825. November crude dropped another $2.36 to finish at $86.59/bbl.

Despite the fact that crude futures prices are sitting near a 12-month low and natural gas futures prices are at an almost 13-month base, commodities on the whole could drop even further in the coming days if the U.S. economy continues to falter. After the energy commodities settled Thursday, the Dow Jones Industrial Average began to plummet in earnest, closing out the day at 8,579, down 679 points (7%) from Wednesday.

The Energy Information Administration (EIA) reported that a stout 88 Bcf was injected into underground inventories for the week, which was right in line with most industry expectations. The lofty injection number, which increased storage levels to 3,198 Bcf, was achieved despite the fact that almost 50% of the Gulf of Mexico’s production was still shut in last week from hurricanes Gustav and Ike. The remaining shut ins continue to limp back this week. As of Thursday’s update, the Minerals Management Service reported that approximately 38.6% of the 7.4 Bcf/d in Gulf natural gas production was still shut in.

Just prior to the 10:35 a.m. EDT report, the prompt-month contract was trading at $6.687. Immediately following the release, November futures dropped to $6.622 before rebounding to trade at $6.789 just a few minutes later. As of 11 a.m. EDT, the contract was trading at $6.712.

Sitting at nearly 3.2 Tcf with four weeks/reports left in the traditional injection season, some market participants find it difficult to get excited about supply concerns, especially when the last two weeks of nearly 90 Bcf builds were accomplished with a significant portion of the Gulf’s production still offline. While the winter is forecast to be especially cold in the East, and injections over the next four reports would have to average more than 86 Bcf in order to beat last year’s record season-ending level of 3,545 Bcf, traders just don’t see where the bulls are going to get their traction.

“If we continue to get injections in high 80 Bcf area, it is not out of the realm of possibility that this market could continue to lower prices,” said Steve Blair, a broker with Rafferty Technical Research in New York. “Gas production in the Gulf is still north of 35% shut-in, so imagine what storage would look like if we hadn’t had the one-two punch of hurricanes Gustav and Ike. If we had been getting injections of more than 100 Bcf, by the end of the injection season we might have been looking at a situation where we had no place to put the gas, which would have pushed it into the cash market, further depressing prices.”

Commercial Brokerage Corp.’s Tom Saal was pretty surprised by the market’s lack of reaction to the report. “I think the market shrugged off a pretty bearish injection number,” he said. “You would expect more of a reaction when you’re getting builds of 80-plus Bcf this late in the season. That said, there is a pattern leading up to these storage reports. If the market sells off just ahead of the report, it is likely to rebound back to where it was and then go the opposite direction, even if the report is bearish. I think there is a vacuum of liquidity right when the number comes out. The reverse is true to. If people are buying into it ahead of a report, when the number comes out the market rolls over and dies.”

Commenting on the industry’s comfort level entering the withdrawal season, Saal said his experience has been that one shouldn’t take anything for granted. “There is always apprehension going into winter. I don’t care how much gas you have in the ground,” he said. “During the early part of winter, people could hoard inventories, which would obviously push prices higher. So while it looks like we have ample supplies going into winter, you just never know how things are going to play out.”

Calling the injection report “slightly bearish,” Citi Futures Perspective analyst Tim Evans said the refill season is certainly measuring up. “The 88 Bcf net injection was slightly bearish relative to consensus expectations and also compared with the 69 Bcf five-year average injection,” he said. “It should keep some downward pressure on prices, with somewhat bearish implications for the storage flows to follow.”

Heading into the report the industry was looking for an injection in the mid-80s Bcf to 90 Bcf. A Reuters survey of 22 industry player produced a range of injection estimates from 78 Bcf to 95 Bcf with an average expectation of an 86 Bcf build. Golden, CO-based Bentek Energy said its flow model indicated an injection of 90 Bcf. The actual 88 Bcf addition was much larger than the 68 Bcf injection from the comparable week last year and a 69 Bcf injection five-year average.

As of Oct. 3, stocks are 117 Bcf less than last year and 69 Bcf above the five-year average of 3,129 Bcf. The East region led the week by injecting 44 Bcf while the Producing and West regions added 35 Bcf and 9 Bcf, respectively.

©Copyright 2008Intelligence 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.