Cash markets overall swan-dived an average 17 cents Friday as the usual suspects of an uninspired corps of weekend buyers joined forces with a mild weather outlook and a weak screen to send weekend and Monday gas sharply lower.

Weakness was widespread with Northeast points showing the greatest losses. In spite of a glitch that halted electronic trading (see related story), futures sellers remained vigilant and pressed the market still lower following a one-hour interruption. At the close of futures trading October had shed 9.4 cents to $2.682 and November was off 7.7 cents to $2.833. October crude oil rose 89 cents to $96.42/bbl.

Rocky Mountain analysts saw the day's decline in a broader and temporary framework. "I think we may have a couple of rough months here because it's a shoulder season and if storage maxes out, the spot market will melt down," said a Denver-based analyst. "The market will melt down before storage reaches peak capacity because when those reservoirs fill, the pressures build up and they cannot physically accept as much gas. Before you reach peak storage, you will have gas getting pushed back into the spot market, and it usually happens when there is no weather.

"You could have a meltdown in spot prices before winter, but people get overly concerned with it. It's a short-term phenomenon, and it only lasts as long as it takes cold weather to get here. There may not be any movement in the longer-term prices. The prompt month will take a bath, but it isn't going to last. As soon as we get our first dose of cold weather, there will be a market for that gas. Companies aren't going to shut in just for a couple of weeks waiting for weather."

Traders had to figure out Friday whether prices or rig counts were falling faster. "The U.S. rig count dropped 21, and that is in a state of free-fall. I know we have a lot of uncompleted wells, but at some point before the rig count gets to 0, gas production is going to roll over. There's no doubt in my mind about it," the analyst said.

He added that Henry Hub was likely to be under pressure, not only from mild weather patterns and a weak technical picture, but also a realignment of gas flows. "You can see what is going to happen. That Marcellus gas is going to push back on Henry Hub, and for Henry Hub to compete on the West Coast it will have to be priced below Wyoming gas because transportation costs will be higher."

His firm is well prepared. "We put $3 hedges on out to the end of the year just to get through the shoulder season."

Quotes throughout the Rockies were down by double digits. Quotes at Opal averaged 14 cents lower at $2.60, and deliveries to the Cheyenne Hub shed 14 cents to $2.54. Gas into CIG Mainline fell 16 cents to $2.52, and Northwest Pipeline Wyoming sank 15 cents to average $2.51. Gas bound for points west on Kern River were 15 cents lower at $2.59, and weekend and Monday gas on Questar shed 15 cents to $2.52.

A California analyst said he thought the "market was scared to death of the weather, but technically things are starting to look pretty darn weak. That's been the big factors today [Friday]."

Just like their Rocky Mountain brethren, prices for weekend and Monday delivery up and down the West Coast fell. At Malin weekend and Monday gas averaged $2.62, lower by 15 cents, and at PG&E Citygate prices fell 12 cents to $3.06. At SoCal Citygate quotes were 14 cents lower at $3.03, and at SoCal Border weekend and Monday gas plunged 16 cents to $2.93. El Paso S Mainline dropped 13 cents to $2.97.

Northeast points proved to be the biggest losers as weather forecasts called for cooling temperatures over the weekend and into Monday. AccuWeather.com predicted Boston's Friday high of 82 would slide to 77 on Sunday and 72 on Monday. The normal high in Boston at this time of year is 76.

Quotes at the Algonquin Citygate averaged 65 cents lower at $2.98, and deliveries into Tennessee Zone 6 200 L tumbled 63 cents also to $2.93. Gas into Iroquois Waddington dropped 43 cents to $3.11.

Other eastern points were hammered as well. Transco Zone 6 New York shed 30 cents to $2.80, and Tetco M-3 slid 30 cents to $2.78. Gas on Dominion was quoted 19 cents lower at $2.68.

Futures traders were undeterred in their preference for the sell side of the market, even with the technical glitch reported by CME Globex.

"I think we'll see $2.50 shortly. We should come in a little bit lower Monday and eventually test down below $2.50 to $2.45 before we get a bounce. I suspect we'll come in a couple of cents lower Monday and then grind lower for the rest of the week," said a New York floor trader.

Trading was halted for about an hour Friday as the glitch was resolved. "It was strictly natural gas. Crude and all the other markets were trading. October was $2.696 when trading halted, and we were getting cash markets that were trading between $2.70 to $2.72 during that time. There were also October [futures] markets on the floor at $2.70 to $2.72 and that's where it was sitting for the better part of the hour. Not really any movement," said a New York floor trader.

Others noted that markets changed following the outage. "The markets were thin," the California analyst said. "I trade options off a terminal, and the bid-offer spreads were very wide after the system went down. I think a lot of the players were out of the market. It was sort of a novelty. We haven't seen something like that in a long time."

Weather forecasts may have been the stake in the heart of the markets Friday. Forecaster WSI Corp. of Andover, MA, in its morning six- to 10-day outlook is looking for moderate temperatures over key energy markets. "[Friday's] forecast is warmer in the Northwest and cooler over the north-central U.S. than it was [Thursday]."

WSI said weather models are in solid agreement, thus leading to "average" confidence in the forecast. Risks to the forecast include a possible shift back to the warmer side over the eastern two-thirds of the country the next few days. "All models depict a brief burst of warmth overspreading the eastern U.S. late next week," the forecaster said.

With a moderating weather environment analysts are anticipating a choppy trend lower. "While the summer dynamic of a sharp contraction in the supply surplus was renewed [Thursday], the market has begun to focus on a record storage level now that weekly CDDs [cooling degree days] are becoming less of a pricing element," said Jim Ritterbusch of Ritterbusch and Associates in a morning note to clients.

"With the Midcontinent region expected to see normal- to below-normal temperatures out to the official beginning of fall, the EG [electricity generation] demand factor that supported values through virtually the entire summer is slowly being removed as a supportive element. This forces the market to focus on any need to inject storm premium for price rallies. With no significant tropical systems currently posing a threat to the GOM production allies, selling enthusiasm is being restored from the speculative community while commercial concerns looking to establish long hedges back away from the market in anticipation of lower prices.

"But despite this seemingly decided bearish environment, we will continue to emphasize that additional price declines will likely prove erratic as values ratchet lower in gradual fashion."

The employment report for August was issued at 8:30 a.m. EDT Friday. The Labor Department reported that non-farm payrolls increased by 96,000, somewhat short of the 125,000 expected. The unemployment rate fell from 8.3% to 8.1%. Equity markets posted nominal gains.

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