May natural gas futures continued on their downward spiral Thursday following the release of government inventory data that showed a withdrawal far less than what the industry was expecting.

The Energy Information Administration reported a pull of 45 Bcf, but traders were looking for a withdrawal in the mid-50 Bcf range. At the close of trading May had lost 8.9 cents to $4.057 and June shed 9.4 cents to $4.126. May crude oil bounded higher, adding $1.41 to $110.30/bbl.

Analysts see a big disappointment. “The 45 Bcf in net withdrawals for last week was bearish relative to consensus expectations, coming in at the lower half of the range of forecasts,” said Citi Futures Perspective analyst Tim Evans. He added that “the storage total of 1,579 Bcf was 86 Bcf lower than a year ago and the year-on-five-year storage surplus was reduced to just 10 Bcf, so we’re still at a ‘near average’ storage level, but the data was something of an emotional disappointment, and since it follows a bearish surprise in the prior week it also tends to confirm that the overall supply-demand balance is weaker than had been thought.”

Industry consultant Bentek Energy, utilizing its North American flow model, had expected a pull of 58 Bcf with the East Region withdrawing 51 Bcf, the Producing Region dropping 8 Bcf, and the West Region adding 1 Bcf. Evans expected a 58 Bcf draw as well, and Kyle Cooper of IAF Advisors in Houston was looking for a reduction of 53 Bcf. Last year at this time 29 Bcf was injected; the five-year average build stands at 13 Bcf.

With the pervasive trend lower, those with exposure to higher prices are taking no action. “None of my end-user clients are doing anything,” said a California risk manager.

He added that most of his clients already had long hedges on, “but you don’t add hedges if you are bearish.” The risk manager also noted that greater uncertainty than normal existed because “we are in one of those times when the natural gas market has been breaking all week while crude oil has been rallying to new highs. May crude oil is up $1.40/bbl and I have no idea why. The natural gas crude oil spread never makes sense to me by any stretch of the imagination.

“My accounts are just sitting there watching. They have their options on and aren’t adding to any positions,” the risk manager said.

Slip-sliding natural gas futures may be music to end-user ears, but natural gas bulls may have to wait for the hurricane season to kick in June 1 to get their mojo working. The Colorado State University (CSU) forecast team — in its 28th year of issuing predictions — predicted on Wednesday an above-average 2011 Atlantic Basin hurricane season featuring a 72% chance that at least one major hurricane will make landfall on the U.S. coastline. While the team, which is headed by William Gray and Phil Klotzbach, slightly reduced its early December prediction, it still called for an active season based on current La Nina conditions that are expected to transition to near-neutral conditions during the heart of the hurricane season (see Daily GPI, April 7).

Technical analysts see a case for at least a short-term end to the current slide. “With Wednesday’s decline coming to a halt right into our $4.157-4.106 (a equals c) target zone and the intraday RSI [14 bar relative strength indicator] reaching oversold we do have a case for bottoming action,” said Brian LaRose, a technician with United-ICAP. “The question here: will a bounce higher represent actual bottoming action or just a relief rally for the RSI? [We] see $3.956 (1.618 a equals c) as the next step down in the latter scenario,” he said after the close of floor trading Wednesday.

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