With screen prices at a three-month low it’s no surprise that July bidweek came in a bit soft. NGI‘s National Spot Gas Average for July bidweek came in at $3.66, a 48-cent decline from June 2013, but 94 cents higher than the July 2012 bidweek average.

All points for July were down close to a half dollar on average and some locations tumbled more than $2. Algonquin Citygates did the honors for the largest fall with a slide of $2.18 to $4.20, but Tennessee Zone 6 200 L wasn’t too far behind with a loss of $1.43 to average $4.16. Of the actively traded points, Florida Gas Zone 3 had the smallest loss of 35 cents to $3.91.

Blame it on the Marcellus. Regionally, the Northeast, with its Marcellus Shale supply glut, had the biggest drop of 67 cents to $3.67 and Midcontinent bidweek was quoted down 50 cents to $3.54.

“The Marcellus displaces just about everything. There is a lot of it and lifting costs are lower. Things are movin’ and shakin’ in the gas patch,” a Northeast marketer told NGI.

The Midwest was down 49 cents to a bidweek average of $3.85 and South Louisiana and the Rocky Mountains each endured 46-cent declines from June bidweek to $3.67 and $3.46, respectively.

California points were seen down 45 cents to $3.73 and Texas points showed the slimmest bidweek drops of 44 cents at East Texas to $3.66 and 43 cents at South Texas to $3.67.

July futures expired last Wednesday at $3.707, up 6.0 cents on the day. For the five trading days ended Friday, June 28, August futures dropped 22.8 cents to $3.565.

In the East basis differentials are crumbling as not only are traders having to deal with a declining market (the $3.526 low of the August contract Friday is the lowest spot futures have seen since early March), but also pipeline modifications have made it attractive to move gas in unusual directions.

“Gas is being backhauled on Tennessee to Dominion and that has enabled Marcellus gas to find a new home,” the Northeast marketer said. “There are also indications that new capacity on Dominion will process gas and allow for ethane extractions. It’s very economical to extract ethane and put the gas back into the system, and gas is trading at a robust discount to get that done.”

Delivery points affected by Marcellus production have seen bidweek basis differentials balloon. During June bidweek NGI reported Henry Hub at $4.15, and Dominion at $4.10. July bidweek gas at the Henry Hub is now $3.71, but Dominion bidweek came in at $3.44, a whopping change from minus 5 cents to minus 27 cents. Other locations have seen an even more dramatic gap. Bidweek on Tennessee Zone 4 Marcellus for June bidweek was $3.50, or 65 cents under Henry, but at $2.88 for July bidweek, Tennessee Zone 4 Marcellus was 83 cents under Henry.

Curiously with even the large drops on the screen and big swings in basis at some points, it was all being taken in stride as bidweek drew to a close.

The marketer said in his dealings no one was talking all that much about the big basis changes. “Nobody is really chatting about it. There’s somebody on the other side of it [basis] that is not happy I’m sure. Hopefully no one bought a lot of basis on Dominion,” he said.

Natural gas prices Friday for Monday delivery followed the lead of Thursday’s futures and fell 16 cents on average. All points fell into the loss column and only a few market points escaped double-digit losses. As bidweek reached a conclusion, futures were putting in a new 3-month low and basis levels at eastern points continued to widen. At the close of trading August fell 1.7 cents to $3.565 and September was off by 1.8 cents to $3.559.

In spite of Thursday’s 16-cent price plunge, analysts are looking for some modest price recovery. Jim Ritterbusch of Ritterbusch and Associates expected “some potential price firming [Friday] as existing short speculative position holders will be looking for reasons to lock in some profits prior to end of quarter. Furthermore, the short-term temperature views are always subject to significant revisions over a weekend, and the warming trends expected across much of the heavily populated northeast region could potentially expand.

“Otherwise, outlooks across a broad portion of the nation’s Midcontinent are still expected to see below-normal temperature readings well into the second week of July. These temperature forecasts would appear to auger in favor of some additional large EIA [Energy Information Administration] storage injections extending all the way out to the 18th of next month. While the huge supply shortfall against last year will remain substantial given the hot summer of 2012, the more salient comparisons against average levels will take on an increasingly bearish appearance. The deficit against five-year averages has narrowed to a mere 31 Bcf and will likely flip to a surplus next month, a fundamental development that will only enhance the confidence of speculative shorts.” While the deficit to the five-year average could very well turn to a surplus in a few reports, more work is necessary to approach last year’s storage level. With 2,533 Bcf in storage as of June 21, current stocks are still 522 Bcf less than last year at this time.

Gas for Monday delivery at the Algonquin Citygates fell 17 cents to $3.64 and deliveries to Iroquois Waddington shed a dime to $3.98. On Tennessee Zone 6 200 L Monday packages fell 16 cents to $3.67.

Deliveries Monday on Dominion traded at $3.06, down 16 cents and gas on Tetco M-3 fell 18 cents to $3.40. Gas headed for New York City on Transco Zone 6 dropped 10 cents to $3.60.

Major market centers also felt the wrath of futures Thursday free fall. At the Chicago Citygates Monday parcels were quoted at $3.58, 14 cents lower, and at the Henry Hub gas was seen at $3.57, 16 cents lower. On El Paso Permian Monday gas came in at $3.47, 12 cents lower, and at Opal quotes for Monday were at $3.37, down 15 cents. SoCal Citygate prices for Monday packages were seen at $3.86, 12 cents lower.

While gas prices are relatively low thanks to moderate heat so far this summer, that could all soon change for much of the country. Matt Rogers, president of Commodity Weather Group (CWG) in the firm’s Friday morning six- to 10-day outlook, said the western heat story “explodes” the first couple days of the week “with records and even all-time records being threatened in many locations.”

However, to prop up prices the heat is going to need to be widespread and stick around for more than a couple of days if there’s a hope of denting the currently healthy levels of gas in storage.

The current production picture isn’t doing anything to support natural gas price bulls. Last week the EIA reported that Lower 48 gross natural gas production during April increased 0.8% (0.57 Bcf/d) to 73.24 Bcf/d from a revised March figure of 72.67 Bcf/d. In a separate report, the government agency pointed out that overall April dry gas production set a record for the month, although it was “a small increase” from April 2012.

The latest Lower 48 gross production figure for April represents an increase of 1.27% (0.92 Bcf/d) from one year ago.

What remains to be seen is whether the uptick in production will force the EIA to adjust its recent price projections. In mid-June the agency again revised its price forecasts upward for the rest of 2013 and 2014. EIA said it expects the Henry Hub natural gas spot price will increase to $3.92/MMBtu this year and $4.10/MMBtu in 2014, compared with an average of $2.75/MMBtu in 2012.

In its last outlook, the agency had said it expected the Henry Hub price to average $3.80/MMBtu in 2013 and $4.00/MMBtu in 2014. That was about 27 cents/MMBtu and 40 cents/MMBtu higher than EIA forecast in April, respectively.