November natural gas weakened again Friday as traders digested reports of additional drilling for natural gas and a production dynamic that continues to point to greater output. At the close November had fallen 8.1 cents to $3.666 and December had given up 5.3 cents to $3.962. November crude oil retreated $2.94 to $79.20/bbl.

“Based on the way this thing went out, it’s not looking pretty,” said Eric Bentley, CEO of VKNG Energy LLC in New York. He added that a lower open on Monday was a distinct possibility and “a gap lower would definitely put the throttle on the selling. I think you will definitely see the market under pressure this week since the only buyers are intraday profit-takers or scale-down buying by funds also taking some money off the table. Everyone has been waiting for this break and it has finally occurred.”

Others also see the market under pressure this week. “This market posted some fresh lows [Friday] on some bearish spillover from the oil/equities, selling overflow from [Thursday’s] big storage injection and another rig count figure indicating another jump in gas-directed units,” said Jim Ritterbusch of Ritterbusch and Associates. “Even as prices have been trending lower since last June from around $5 to below $4, the gas-directed rig count has been working higher. According to Baker Hughes, gas rigs increased by 11 last week to a total of 923. This figure is now only 39 units or 4% below a year ago.

“When combined with a continued uptrend in oil rigs that are now some 54% above a year ago and a quiet hurricane season, the production factor is now squarely back in focus as a bearish element within this market. Add in some mild temperature patterns that are expected to extend into mid-October and a lack of significant hurricane threat to the Gulf of Mexico and the ingredients would appear to be in place for additional price declines this week. Our efforts toward a bullish stance were deterred by [Thursday’s] storage figure and the chart breakdown into new low territory. Although we currently favor the sidelines, we can construct a case for additional price weakness that could carry nearby futures to about the $3.48 area,” he said in an afternoon note to clients.

Thursday’s stout 111 Bcf injection report has analysts thinking the market may see a storage dynamic comparable to last year. “We are now headed into October as pipelines complete the task of injecting gas for the winter ahead. Last year we eradicated a deficit of 48 Bcf against the previous year in the three weeks leading up to Nov. 5,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm.

“At that point we had 3.84 Tcf in storage, for a surplus of 31 Bcf against a year earlier — and a surplus against the five-year average of 342 Bcf or 9.77%,” he said. “It looks like we may have a similar rush to the finish line this October; we could see 400-500 Bcf added before stocks peak in early November. With so much gas around and with prices falling, there is no reason not to inject the gas for the winter. At least pipes will have the benefit of some weather.”

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