Physical natural gas prices for weekend and Monday delivery fell about 9 cents Friday as typically weak weekend loads combined with moderating weather to pummel prices lower.

Northeast points showed the greatest resistance to the soft market and were steady or made nominal gains. Futures slumped and at the close March had fallen 7.1 cents to $2.550, which is 13.4 cents below the contract’s close the previous week.

In spite of announced production and capital expenditure cuts, in some places the rubber has yet to meet the road. “I follow Devon and Anadarko and they haven’t let up. Anadarko says ‘we’re not drilling any,’ and Devon says dry gas drilling is zero, but I am here to tell you that’s nonsense,” said a Rockies producer.

He did admit that numerous projects were going toward “those with liquids and crude oil, but you are going to have reserve write-downs; banks are going to cut credit lines, and this is insane. You can’t be drilling wells at $2.50 gas. If its liquids, it’s a different story.

“One of the most encouraging things I’ve seen is the realization that most of the crummy storage numbers have been due to weather. Bentek has been saying that production growth peaked in late November, and analysts are saying if we had normal weather, the market is actually undersupplied, maybe 3 Bcf/d. Tudor Pickering is saying the same thing. The weak storage reports are due entirely to weather, but we’ve got big problems when the storage facilities start going down for maintenance. All that surplus gas has to come out and gets dumped on the spot market. When those facilities are down, they can’t take injections,” the producer pointed out.

Rockies prices as well as those throughout the nation slumped as moderate weather and low weekend loads converged to pressure the market. Delivery points serving eastern points suffered somewhat greater declines. At the Cheyenne Hub gas for weekend delivery fell a little more than a dime, but at the Opal Plant tailgate, Northwest Pipeline Wyoming and CIG mainline prices all fell a few pennies less.

One eastern marketer said, “the market was a little stronger than I thought it would be. He added that Canadian gas was starting to flow into (Iroquois) Waddington as a result of favorable price differentials. “That made sense for the weekend but not for Friday,” he said.

Deliveries into Algonquin citygates and Iroquois Waddington were flat, but parcels destined for Dracut and Tennessee Zone 6 200 L added a few pennies.

Prices across the Lone Star state took a beating. Gas into NGPL S TX fell more than a dime, but quotes at the Houston Ship Channel were 8 cents lower. Gas priced at Texas Eastern E TX tumbled close to 15 cents.

Futures traders saw the market flirt with critical technical support levels. “The $2.50 level is pretty crucial in here. We got down to $2.512, but Friday was options expiration, and I am thinking that options dealers were trying to keep the market above $2.50,” said a New York floor trader.

“There is concern that the market could trade with a $1 handle, but weather-wise March could be a swinger. Everyone is still in a ‘sell rallies’ mode,” he said.

Any sale into price rallies will be against headwinds of a lower rig count. Baker Hughes reported that as of Friday active gas-directed rigs fell by six to 710, almost 200 rigs fewer than the 906 operating a year ago. Total U.S. rigs dropped by 13 to 1,981, well above the 1,699 of a year earlier, and active horizontal rigs rose by two to 1,165, well past the 981 turning a year earlier.

Fewer gas-directed rigs notwithstanding, analysts suggest that the current 40% storage surplus could expand further. “The market will also be forced to discount the possibility that this supply overhang could stretch further to as much as 50% by the end of next month,” said Jim Ritterbusch of Ritterbusch and Associates.

Ritterbusch sees recent production cuts as symptomatic rather than capable of changing the supply-demand dynamic. “As a consequence, the specter of additional production reductions is forced into the market equation as a significant counter against a huge supply surplus,” he said. “But in support of our bearish trading bias, we will suggest that the current supply surplus of about 750 Bcf has been discounted, but the likelihood of a further significant expansion in the storage overhang has not likely been fully priced in. This leaves open the possibility of a return to the price lows of around $2.50 per April futures seen at the beginning of this month.”

Moderate winter temperatures and plump storage have been largely discounted by the market at this late stage of the heating season, thus traders will be turning their attention to summer weather and the tropical outlook. If the summer forecast by Commodity Weather Group of Bethesda, MD, is correct there will be above-normal heat, but it will be limited to the Midcontinent.

The firm forecasts that the main feature to the summer will be “the expanded heat in the middle third of the nation…with cooler-leaning conditions toward the Great Lakes and East Coast. Right now, the big picture view is that we should see a cool trough toward the West Coast (associated with cooler-than-normal near-shore water temperatures), a Midcontinent heat ridge at times, and then cooler troughing toward the Northeast too,” said Matt Rogers, president of the firm. “There is a tendency for Midcontinent heat during La Nina cycle years, with Texas being a primary/frequent target. We shifted the heat a bit more toward the Texas interior and southern Plains areas where dryness is persisting more. The overall May-September period is expected to run about 9% cooler than last year. Typically, the third summer of a La Nina cycle is the coolest of all three (like summer 2000).”

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