Natural gas futures finished higher Thursday as bear traders were unable to use another larger-than-expected storage injection (32 Bcf) to their advantage. Though selling was seen immediately following the 10:30 a.m. EST storage report, it failed to press the market below what has become very stubborn support in the low to mid $4.60s. The market rebounded as a result, led by the December contract, which climbed back above unchanged and eked out a 5.8-cent gain to finish at $4.797.

According to the Energy Information Administration, 32 Bcf was added to storage last week, bringing stocks to the 3,187 Bcf level as of Nov. 6. Only in 1998 and 2001, when storage peaked at 3,213 Bcf and 3,254 Bcf, respectively, were natural gas inventory levels higher heading into the winter heating season.

While the level of gas in storage is large versus historical comparisons, it is almost inconceivably robust versus the paltry levels witnessed in April of this year, when stocks dipped to an all-time record low of 642 Bcf.

The storage report Thursday was not only bearish in absolute terms. The 32 Bcf net injection was also price-negative when compared to market expectations, which called for a 15-37 Bcf refill. A year ago the market withdrew a whopping 48 Bcf and the five-year average for this time of year is a 6 Bcf build. According to the EIA, the surplus to last year now stands at 90 Bcf and the surplus to the five-year average has grown to 121 Bcf.

However, despite the market’s inability to break-out to the downside following the storage announcement Thursday morning, market-watchers suggest it is only a matter of time before prices move significantly in one direction or the other.

“There are two camps out there right now,” said George Leide of Rafferty Technical Research in New York. “There are some holdouts looking for the first blast of really cold weather to produce a rally to the $5.00 level and beyond. The majority opinion, however, is that the bearish combination of mild weather and full storage will weigh on the market and could lead to much lower prices.”

If the weather remains mild and the latter case comes to fruition, Leide would not be surprised if prices ducked down to the $2.50-3.00 level this winter. Should winter weather show up, however, traders’ memories of last winter could prompt a rally to $8.00 or more, he predicted.

To hedge the risk associated with a market that could land at either the $2.50 or $8.00 level in the next six weeks, Leide recommends taking advantage of the relatively low volatility right now by buying either an options straddle or an options strangle. “For roughly 78 cents, you can buy both a $4.90 January call and put. Volatility is at 61% right now. If the market moves, it could increase to 85-90% easily, increasing the value of those options.”

More frugal hedgers, Leide said, might want to take a look at putting on an options strangle, which entails the simultaneous purchase of a below the market put and an above-the-market call. “For 35 cents, you could buy a $4.25 January put and a $5.55 January call. We could see both a rally and a retreat between now and the January options expiration (on Dec. 24).”

In daily technicals, Tim Evans of IFR Pegasus in New York sees resistance in conjunction with the Oct. 24 chart gap up to $5.04. Accordingly, he looks to be long should the market trigger his buy stop at $5.05. A sell stop at $4.77 would limit his risk on the trade.

On the downside, Leide suggests a break-out of the recent range could lead to a stair-step move down to another trading band in the $4.30-60 span.

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