Bearish 53 Bcf Storage Injection Fails to Dissuade Bulls, Reports NGI.

DULLES, Va. -- Despite the Energy Information Administration (EIA) report Thursday morning that a much larger-than-average 53 Bcf of gas was injected into storage for the week ended Nov. 11, the natural gas futures market's knee-jerk reaction was to jump higher on current cold temperatures and winter fears.

In anticipation of the report, December natural gas traded lower to notch a $12.080 tick as of 10:26 a.m. EST, which was 24.9 cents lower than Wednesday's settle. However, in the minute following the report's release at 10:30 a.m., prompt month natural gas jumped to trade at $12.300. A few minutes later, December natural gas traded at $12.400. After pinging once again off of the $12.080 low just before noon, the prompt month was trading at $12.275 by 1 p.m.

While current working gas storage levels at 3,282 Bcf are normally considered to be adequate entering the withdrawal season, the wild card this year is whether there will be adequate flowing production under colder-than-normal winter conditions given the Gulf of Mexico production shut-ins due to hurricane damage.

"Like I have said before, I just don't think this injection is going to mean anything," ICAP Energy broker Brad Florer said Wednesday. "Storage is a known quantity at this point. What matters is how cold it is this winter and how much production we can jam out."

Traders are attempting to balance the recent onslaught of cold air, which will no doubt have a substantial impact on next week's storage figures, with the ample amount of gas in storage.

Commercial Brokerage Corp.'s Tom Saal said the storage report definitely revealed a big number. "Compared to this week over the last five years, it is the largest injection, and this is with all of that gas shut in due to hurricane damage," he said. "How does that add up? I'm not sure. Maybe what is happening is some demand response, with people turning their thermostats down due to these high gas prices."

Saal said the immediate price jump following the report was a result of the "instantaneous lack of liquidity" that happens every Thursday following the storage report. "In natural gas, we are still attempting to establish a trading range," Saal said. "We know the downside is at $11, so we are probing the upside. We were stuck basically between $11 and $12 for over a week, and we broke higher Wednesday."

Saal will be sharing his expertise at reading the market at NGI's upcoming very popular workshop December 7-8 at the New York Mercantile Exchange. Joining him will be Ed Kennedy of Commercial Brokerage and long time floor trader and market-mover Sandy "Trot" Goldfarb, who will share how he views the gas futures market in both the short- and long-run.

As for advice in this market, Saal said, "For buyers, they still have to own some because the upside -- if the winter is below normal temperature-wise -- could be explosive. Right now, we are trading approximately $3 off December's $15.25 high back on Oct. 5. If you're a seller, you probably want to buy put options. You could buy the $12 put for 35 cents. A producer needs to figure out how much it is going to cost him to actually go out and drill for gas so he can figure out what his costs are per MMBtu. I am sure with these prices, he can afford 35 cents."

As for thermostats, the mercury is expected to drop in many regions of the country this winter. Accuweather.com said earlier in the week that winter is likely to bring below-normal temperatures to the Northeast. "While much of the western U.S. will experience above-normal temperatures during the upcoming one- to three-month period, the Northeast U.S., heavily reliant on heating oil, faces a colder-than-normal winter," the State College, PA-based forecasting firm said. "This will place further strain on consumers who are already wrestling with the higher energy prices that followed this year."

On the storage report, Citigroup's Kyle Cooper had been calling for a build between 52 and 62 Bcf. "A build in our range would again be considered bearish on a temperature-adjusted basis," he said.

A Reuters survey of 22 industry players predicted that the report would reveal a 51 Bcf injection. Wednesday afternoon's ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, had predicted a 54.5 Bcf injection for the week.

The number revealed Thursday morning was extremely bearish when compared to last year's no change for the week and the five-year average of a 3 Bcf withdrawal.

As of Nov. 11, stocks were 40 Bcf less than levels at the same time last year and 179 Bcf above the five-year average of 3,103 Bcf. Stocks in the East region increased by 28 Bcf for the week, while the Producing and West regions contributed 21 Bcf and 4 Bcf, respectively.

Because of the forthcoming Thanksgiving holiday, the EIA reported that its Weekly Natural Gas Storage Report for the week ending Nov. 18 will be released on Nov. 23 between noon and 12:10 p.m. EST .

About Intelligence Press Inc.

Intelligence Press Inc., commonly referred to as NGI by the energy industry, is an independent publishing company and has been serving the energy industry since 1981 with breaking natural gas and power news and pricing information at its website at http://intelligencepress.com and in its publications: Natural Gas Intelligence, Daily Gas Price Index, Weekly Gas Price Index and Power Market Today.

About the Natural Gas Futures Price Workshop

Where's the market going? And what can you do about it? These questions and more will be answered by experts who will be taking time off from active natural gas futures trading, in a repeat of the very popular NGI Managing Natural Gas Futures workshop, at the New York Mercantile Exchange (NYMEX) December 7-8, 2005.

For more information about the workshop visit: http://gasmart.com/workshop