After first rallying on the news that a whopping 100 Bcf had been injected into underground storage facilities last week, the natural gas futures market suffered a slow grind lower Thursday as traders lightened their longs ahead of Friday’s expiration. At $4.542, the October contract finished 4.6 cents lower in its penultimate trading session. It goes off the board Friday at 2:30 p.m. EDT.

According to the Energy Information Administration (EIA), working gas levels rose to 2,688 Bcf during the week ending Sept. 19. The 100 Bcf injection easily exceeded the 73 Bcf five-year average as well as the 66 Bcf refill for this week last year. Over the remaining six weeks in the refill season, only 52 Bcf/week needs to be added to reach the 3,000 Bcf mark.

Given continued forward arbitrage opportunities and mild temperatures this week, sources are already preparing for another large injection to cut further into the 302 Bcf year-on-year deficit. “[A large refill] combined with the pending 47 Bcf year-ago injection comparison should yield a further notable decline in the deficit,” said Ronald Barone of UBS.

“Thereafter, we expect the deficit to move toward the 100-150 Bcf range by mid-October, given the latest national temperature outlook, some level of ongoing demand elasticity, and the following three [year-ago report] comparisons of 42, 48, and 33 Bcf… All things considered, we continue to believe that the industry will reach the 3,000 Bcf comfort storage level by Nov. 1,” he said.

Meanwhile the deficit compared to the five-year average, which in April loomed at a hefty 600 Bcf, has since tumbled to just 93 Bcf.

“The market has been holding firm the last couple days in light of what was promised to be a big number,” said Jay Levine of Advest Inc. “The Street was expecting a big number if not a record number, which it got, but it certainly was not acting the way you would expect. The market has an inherent nervousness right now. It’s remaining — in essence — in check.”

Helping to keep the market “in check,” is apprehensiveness about the upcoming winter and reaction following OPEC’s decision to cut oil production quotas by 0.9 million barrels a day (see Daily GPI, Sept. 25). “The crude market certainly helped [provide support],” Levine added. “It added one other layer of questions regarding the future. The timing of OPEC putting that production cut in place was a surprise. It’s coming at a time — heading into winter — that makes people concerned, and there are a number of entities calling for a cold winter. Do the math. We have a potentially cold winter and an OPEC production cut. That’s not a favorable situation.”

With technical factors thrown out the window in expiration-day activity, Friday’s market will be determined by who is willing to make or take delivery of October physical supply in or around the $4.50 level. A year ago the October 2002 contract went off the board at $3.686, which was double the value of the October 2001 contract final price of $1.83. A month ago, the September contract closed at $4.927. At that time, the October contract was trading at about $4.90 and has, therefore, fallen roughly 40 cents during its tenure as prompt month.

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