March natural gas futures continued Thursday's descent Friday in lackluster trading as the contract could only carve out less than a 6-cent range. Traders noted continuing pressure on the front end of the board from 2012 contracts, and others cited the likelihood of moderate temperatures this summer. At the end of the day March futures fell 7.6 cents to $3.910 and April skidded 6.0 cents to $3.977. March crude oil dropped $1.15 to $85.58/bbl.

"This decline did not come as much of a surprise to me," said a Chicago-based trading analyst. He added that "the temperatures seem to be a bit milder over the six- to eight-week forecast and supplies are well in the bearish court. Frankly, I am surprised that we haven't been down this low earlier.

"Calendar 2012 was significantly weaker this week, and that has pushed prices lower for 2011. It was down 15 to 20 cents, but there is some optimism in Calendar 2013 for it didn't move down as much. There are no bullish fundamentals that should keep gas above $4."

According to the analyst, his company's research department had predicted a 2011 average price for the year "in the $4 range, but they are in the process of updating it. We don't see any weather or supply disruptions in the near future, and if I were a producer, I would not be liking the near-term price outlook."

Other analysts see a decline to the low $3.80s as definitely in the cards. "The market has been there [$3.80] a couple of times, and if you go back to October you get to $3.25," observed Kyle Cooper, an analyst with IAF Advisors in Houston. According to Cooper, "$3.25 is not in the picture because we have had such large draws in January and February, but I would re-introduce that possibility later in the summer. I just saw an article in the Farmers Almanac which has been one of the more accurate forecasters the last couple of years, and they are calling for a much more moderate summer. Little pockets of heat, but they point partially to the tremendous build-up of snow and other moisture and that is expected to keep evaporative cooling quite high into June or July. That will help to limit any early heat accumulation."

Some feel the now-vanished inventory surplus relative to last year and the five-year average should act as a supportive factor. "Although last fall's nearby futures lows to about the $3.21 level would appear possible from a longer-term perspective, we feel that this winter's elimination of a long-standing supply surplus will preclude such a development," said Jim Ritterbusch of Ritterbusch and Associates. "So, while we still see a high probability of a run at the $3.85 level, we will also be anticipating a price bounce from this area with nearby futures generally gravitating around the $4 mark through the balance of this winter."

Market technicians versed in wave counts and retracements still see a glimmer of hope for the bulls. "Peg $3.869-3.849 as the lowest levels consistent with any bull market correction for the March contract," said Brian LaRose, an analyst with United-ICAP, in a Friday morning note to clients. "Fail to turn higher from this zone and a test of the $3.212 low will be anticipated. Big picture: a break below this critical support zone would significantly postpone the bullish model as a series of lower lows will be needed to complete our wave count."

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