Even with much of the Gulf of Mexico’s natural gas production shut in, storage operators were able to inject a whopping 87 Bcf into underground storage for the week ended Sept. 26, which turned the keys back over to natural gas bears for the time being. Following the Thursday morning report from the Energy Information Administration (EIA), November natural gas futures dropped nearly 30 cents before finishing out the session at $7.481, down 24.7 cents from Wednesday’s close.

Prior to the 10:35 a.m. EDT release of the report, the prompt-month contract was trading at $7.727. In the minutes that immediately followed, the contract was down at $7.438. The contract put in a $7.435 low soon after, rebounded to $7.622, then trailed lower from there.

Even though the 87 Bcf build was “higher than expected,” Citi Futures Perspective analyst Tim Evans said he did not believe it was enough to send futures values charging in either direction. “The build of 87 Bcf was above the consensus expectation and also high on the 72 Bcf five-year average,” he said. “In the larger scheme of things, this report still keeps the total at a near average level, providing no particular leverage to move prices sharply in either direction.”

In addition to besting the 72 Bcf five-year average for the week, the injection also loomed high above last year’s 62 Bcf build for the date-adjusted week. The lofty build was achieved despite the fact that Gulf of Mexico production is returning at a slower pace than many expected. According to the Minerals Management Service, on Wednesday approximately 47.7% of Gulf of Mexico gas production was still shut in out of normal production of 7.4 Bcf/d.

“The EIA’s report Thursday covered the first full week of outages following the devastation of Hurricane Ike, so I think a lot of people were expecting to see a smallish injection, especially after the report for the week ended Sept. 19 revealed a 51 Bcf build,” said a New York trader. “I guess it goes to show that you should never assume anything.”

Commercial Brokerage Corp.’s Ed Kennedy, who was not surprised by the stout storage build, saw the situation in a completely different light. “While the entire Gulf of Mexico was shut down all last week, there was still gas in the pipe and most of the electric utilities were down in the producing area as well, so there was not a whole lot of gas demand coming in either. Sure the 87 Bcf injection was impressive, but there is no concern about refilling storage. Even after the devastation of Hurricane Katrina in 2005, we still refilled storage.”

Looking at the current price developments, Kennedy noted the market is still in a trading range between $7.200 and $8.320. “We are going to stay within this range for the time being. We are building a base of what I believe will later on be a major move to the upside,” he noted. “In this market, you really buy and hold. It is a terrible market to day trade with all of the volatility. There are rumors that with the Wall Street troubles, hedge funds are getting out of everything. We are seeing some long liquidation coming in. Where are the hedge funds winners? Welcome to the exciting world of futures trading, fellas. This isn’t as easy of a market to trade as they were led to believe when they got in. No, the market does not just go up every day.”

Ahead of the storage report, Golden CO-based Bentek Energy said its flow model indicated an injection of 81 Bcf, while a Reuters survey of industry players produced a 75 Bcf estimate.

As of Sept. 26, working gas in storage stood at 3,110 Bcf, according to EIA estimates. Stocks are 137 Bcf less than last year at this time and 50 Bcf above the five-year average of 3,060 Bcf. The East region Injected 51 Bcf for the week and the Producing and West regions chipped in 24 Bcf and 12 Bcf, respectively.

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