November natural gas rose Thursday after a government report showed a smaller injection into gas storage than what analysts were expecting. The 10:30 a.m. EDT report by the Energy Information Administration showed a build of 103 Bcf, about 5 Bcf less than what was anticipated. At the close November had added 4.4 cents to $3.630 and December gained 2.1 cents to $3.834. November crude oil fell 81 cents to $85.30/bbl.

Market technicians see futures forming a market bottom or eventually working higher, possibly after the November contract expires.

“We did this last year. Last October we slid right into expiration of the November contract, and we are now approaching that so we will be looking closely for evidence of bottoming action,” said Brian LaRose, an analyst with United-ICAP.

November futures expire Oct. 27.

“I still think we could take a trip down into the $3.20 area before that time, but I think for the most part we may not get there,” LaRose said. “Despite [Thursday’s] price action, the market looks a little weak but we are in the window for seasonal bottoming. I’m not about to give up on it yet. In terms of wave count and seasonality, we may get to $3.20 and we may not, but I think there is a very good chance we could see a seasonal rally once the December contract becomes spot. It’s just a matter of wait and see.

“I think at this point you have to say, ‘What is the downside risk?’ I think at this point it is fairly limited. Natgas has not participated in the rally like the rest of the commodity markets have, and the fact that natgas has been able to avoid that inflated rally due to the dollar and interest rates tells me that it will continue to act independently.

“Perhaps the fundamentals deteriorate further in natural gas; then and only then could you see a breakdown. There is still downside risk, but when I look at the seasonality, the price action, the wave count, I’m not ready to say that is where we are headed. I need to see the market get below $3.20 to open up room down to $2 or sub-$1, but until that happens I’m looking for bottoming action between here and $3.20.”

The 103 Bcf addition continued to bring storage levels into alignment with last year. The year-on-year deficit now stands at 46 Bcf, down from 56 Bcf a week earlier, and storage relative to the five-year average is up to a surplus of 113 Bcf, a hefty jump from last week’s five-year surplus of 68 Bcf.

Before the report’s release the market had been looking for a somewhat higher build. IAF Advisors of Houston forecast a build of 106 Bcf, and a Reuters poll of 26 traders and analysts showed a range of 104-131 Bcf with a 110 Bcf average. Industry consultant Bentek Energy, utilizing its North American flow model, anticipated an increase of 106 Bcf but cautioned that may be on the low side.

As it turned out that proved not to be the case. “Larger-than-forecasted builds can be reported in the East and Producing regions as demand has decreased across the U.S. and storage has been absorbing the extra supply in the market,” Bentek said. Weak cash prices have also set the stage for greater injections. “Additionally, storage stocks in all three regions remain below last year’s levels, which combined with weak cash prices create incentives for storage injections. Henry Hub cash prices have been below the Nymex November forward prices during the entire storage week.”

Last week’s stout 112 Bcf report was about 5-10 Bcf greater than what pundits were expecting and one school of thought has it that the EIA would make adjustments in Thursday’s report. There were no changes to the data in the report but prior to the figures’ release John Sodergreen, editor of Energy Metro Desk Express, said, “[B]y our calculation, we expect somewhat of a true-up this week to make up for last week’s misfire.

“[W]e’re shooting a bit low. This week the editor (and a few others) are inside the 105 Bcf base that formed up around Sunday-Monday. The editor’s 102 Bcf build is lower than most, but hardly the low-baller.”

After the report he said, “Does this ever confirm the idea of truing up! When there is a difference of 3 Bcf or more between the three categories I track, there is almost always a surprise.”

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