Coming off a strong rally in the previous session, natural gas futures were trading slightly lower early Wednesday as analysts continued to monitor signs of a pullback in production. The May Nymex contract was down 1.8 cents to $1.834/MMBtu at around 8:35 a.m. ET.

An increase in weather-driven demand expectations has played a part in the recent rally, which included a 12.1-cent gain for the May contract in Tuesday’s session. But the market is also reacting to the prospect of production declines, according to EBW Analytics Group analysts.

“Mounting evidence that oil storage could be completely full in less than a month drove prices much higher than would otherwise have been expected,” the EBW analysts said in a note to clients Wednesday. “Our model indicates that once tanks top out, production of associated gas could fall by as much as 3.5-5.5 Bcf/d in 90 days.

“Decline in supply is only half of the equation; demand is declining more rapidly. For now, though, the market is likely to continue focusing primarily on supply. The May contract is likely to probe higher again today. Profit-taking ahead of tomorrow’s weekly storage report, though, may limit today’s gains.”

Genscape Inc. said its daily production modeling is already showing evidence that the collapse in commodity prices is impacting volumes.

“Daily production prints have been posting notable declines,” Genscape senior natural gas analyst Rick Margolin said. “While we can pinpoint a good portion of the drops to maintenance in certain regions (particularly the East), we believe some of the declines are reactions to the rapid collapse of prices. Our top-day estimate of Lower 48 production is showing a more than 1 Bcf/d day/day drop today, having sunk just below 91 Bcf/d.

“While today’s estimate is likely to get revised up in later cycles, at the moment it marks the lowest single day of production since early February, when freeze-offs whacked more than 1 Bcf/d offline.”

As for the latest forecasts, Bespoke Weather Services described the overnight guidance as mixed.

The European and American datasets “did agree on a minor warmer change early next week...and we adjusted our forecast accordingly, being a shorter range call, while leaving the rest of the forecast mostly unchanged,” Bespoke said. “...We are still confident in a strong cold outbreak for mid-April on the way, especially” for days six through 10 of the outlook.

May crude oil futures are up 20 cents to $23.83/bbl at around 8:35 a.m. ET, while May RBOB gasoline was off fractionally to around 64.0 cents/gal.