Bearish 75 Bcf Storage Injection Puts Bullish Case in Doubt, Reports NGI.

DULLES, Va. -- Coming in well above virtually all expectations, net natural gas storage injections for the week ended Oct. 14 totaled 75 Bcf, according to the Energy Information Administration's (EIA) report released Thursday morning. Adding to the weakness that was already prevalent in the natural gas futures market Thursday morning, the bearish report pushed the November contract even lower.

In the few minutes following the 10:30 a.m. EDT report, November natural gas dropped 21 cents to trade at $12.85, which is 69.9 cents lower than Wednesday's settlement. As of noon EDT, the prompt month was trading at $12.91.

The healthy storage injection means either demand deconstruction is coming in at higher-than-expected levels, or the supply picture isn't as troubled as many believe. The Gulf of Mexico still remains a little more than half shut-in following Hurricanes Katrina and Rita.

"It was a huge storage injection, but we really weren't too surprised," said Ed Kennedy of Commercial Brokerage Corp. in Miami. "We kept warning everyone that they better watch out, because once the gas starts flowing, the utilities are going to grab every molecule they can and put it into the ground."

Kennedy said demand deconstruction also probably played a role in the sizeable build. "That very likely made more gas available," he said. "That is both sides of the equation."

As to where the market was expected to end up at the end of the session, Kennedy said he was looking lower. With Hurricane Wilma still looking as if it will spare the Gulf of Mexico's oil and gas production areas, the market's focus appears to be on lower numbers. "The key number is $12.70, if we close below that you can kiss this bull market goodbye for a while," the broker said.

Kennedy along with his Commercial Brokerage partner, Tom Saal, will be sharing some of their market reading expertise at one of the very popular Natural Gas Futures Trading Workshop sessions December 7-8 at the New York Mercantile Exchange. Joining them will be long-time floor trader and market-mover Sandy "Trot" Goldfarb, who breakdown for attendees how he views the gas futures market -- both the short- and long-run.

While Mr. Trot uses mostly technical tools to predict market moves, he also keeps and eye on the level of gas in storage. Heading into Thursday's report, most industry projections had been calling for an injection in the mid-50s to low 60s. The Wednesday afternoon ICAP-Nymex storage options auction, which allows traders to hedge against or bet on the storage number, predicted a 60.3 Bcf injection for the week.

Citigroup's Kyle Cooper raised his expectation in the days leading up to the report from something in the high 40s Bcf or low 50s Bcf to a build of 62-72 Bcf.

"The dramatic difference between the initial estimation and the final estimation resides solely in the reported injections of the larger pipes that release figures on Monday afternoon," Cooper said. "Every major pipeline that we track east of the Rockies ended up reporting an injection larger than last week."

The injection decimated historical comparisons. According to the EIA, 64 Bcf was injected into underground storage for the same week last year and the five-year average build is 56 Bcf. As of Oct. 14, working gas in storage stood at 3,062 Bcf, the EIA said. Stocks are now 152 Bcf less than last year at this time and 53 Bcf above the five-year average of 3,009 Bcf.

With a couple weeks left before the market switches from net injections to net withdrawals, storage is considered adequate for the upcoming heating season. In fact, with only 138 Bcf needed to reach the 3,200 Bcf "comfort level," the market appears to have ample supply for the five-month withdrawal season.

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.

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.