Rounding out the flip-flopping action of the week, cash points unanimously plunged on Friday ahead of the weekend as moderating weather and Thursday’s hardy natural gas storage report made it very difficult to argue that the supply-demand equation is anywhere close to being balanced.

The debate continues as to when the markets will begin to feel the pinch of the months-long drastic reduction in drilling rigs searching for natural gas in the United States. However, market watchers got a piece of unexpected news Friday. After falling by 15 rigs for the week ending June 12, Baker Hughes stunned the market Friday with news that the count actually increased by seven to 692 for the week ending June 19. The increase in rigs actively searching for gas was the first in seven months, but the total is still 54% below last year’s level for the similar week of 1,514 rigs. The research and drilling services firm noted that the number of gas rigs in the Gulf of Mexico dropped by one during the week, but eight rigs were added elsewhere.

Cash market weakness Friday was also encouraged by a 16-cent drop in July natural gas futures on Thursday. Spanning the country’s cash market averages, the Rockies and the West Coast produced some of the largest declines Friday as most points decreased by between a quarter and 40 cents. Midcontinent points also posted a few losses nearing 30 cents while the rest of the country declined mostly between 15 and 20 cents.

One market expert said the steep drop in prices out West likely had a lot to do with changing weather patterns. “As always, weather is a big indicator. No one is real sure what kind of generation load is going to be firing up over the weekend,” said a West Coast trader. “I think a lot of that played into the morning trading session Friday. There is not a lot of heat in West Coast states in the forecast. California was really hot on Thursday and Friday, but it is supposed to cool off through the weekend until Wednesday. Our gen load has probably flatlined. I think some gas was flowing to the Southwest or stayed in Texas.”

Looking at the National Weather Service’s six- to 10-day forecast covering June 25-29, the real heat looks as if it will avoid most major population zones. The center third of the U.S. is expected to exhibit warmer-than-normal conditions during the time period, while the West and East are to experience below-normal to normal temperatures.

Despite the drastic rig reductions of the last couple months, gas storage continues to fill at a record pace. Thursday’s 114 Bcf build for the week ending June 12 nearly doubled last year’s 60 Bcf injection for the similar week and well outpaced the five-year average injection of 80 Bcf. With 2,557 Bcf tucked away in storage, current stocks are a stunning 622 Bcf above last year at this time and 472 Bcf above the five-year average.

“Supplies are not the concern right now. Storage is filling at a record pace,” the trader said. “It will be interesting to see what people do once the facilities are full. The answer might lie in two-liter bottles or large balloons,” he joked. “The prices are right for people to stuff this gas into the ground. Everyone is looking at the forward months and they are hoping on turning that profit.” The July 2009 contract closed Friday’s regular session at $4.032, while the December 2009 contract closed at a $1.78 premium at $5.812.

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