Breaking through the $6 mark in Nymex’s overnight Access session without batting an eyelash, February natural gas futures stayed well below the psychological level all day Monday. After hitting a low of $5.71 on the session, the prompt month settled at $5.79, down 35.9 cents from Thursday’s settle.

After opening at $5.83 Monday morning, natural gas would go no higher on the day. Instead, February traded back and forth in the $5.70s all day long. The lack of significant heating load weather also helped heating oil and crude futures go lower on the day.

“Mild temperatures continuing this week and forecast to persist in the eastern U.S. through next week will continue to limit demand and will help see the market deeper into the heating season with a large remaining surplus of [storage] stocks,” said IFR Energy Services’ Tim Evans. “At this stage, larger than expected withdrawals can actually be bearish, in effect representing selling pressure on the physical side of the market.”

Evans noted that February natural gas is leaving a bearish, weekly price gap behind from $5.949 up to Thursday’s $6.10 low and this argues against trying to “catch the falling knife.”

He allowed that declining channel support at $5.53 could slow the descent, but will back away to lower levels in each successive session. “Longer-term support is projected for $5.10 and again in the $4.75 area, ahead of the $4.52 spot low from September, but even these levels may only provide interim support along the way to an even lower objective,” he said.

As for the upside, Evans said he sees the $5.95-6.10 gap as initial resistance, with more selling in the $6.20-6.28 area if February manages to recover to that extent.

Advest Inc.’s Jay Levine said that because the fundamental picture continues to be overburdened with supply, he expects further price erosion in natural gas futures. “The fundamentals are indeed awful, and with charts breaking down, little if no winter weather to speak of on the horizon, and sentiment clearly in the bear — if not grizzly — camp, it’s a wonder we’re not trading much much lower; even today,” he said. “I do think we’ll trade … lower across the board, but I’d also caution that when I see headline after headline talking the market lower — by stating the obvious — thereby adding to an already growing bearish persuasiveness, I’m mindful of a counter-trend bounce.”

According to the National Weather Service’s (NWS) latest six-to-10-day outlook released Sunday, the entire eastern U.S. is expected to experience above normal temperatures. In addition, most of Texas and southern New Mexico are also expected to be warmer than normal. The West and most of the central portions of the country are expected to record below normal temperatures. Looking out a little further to the NWS’ eight-to-14-day outlook, the entire East is still expected to be above normal temperature-wise.

Literally adding to the supply picture is the fact that natural gas production in the Gulf of Mexico continues to work its way back online following last fall’s Hurricane Ivan.

With 17 companies reporting, the Minerals Management Service (MMS) reported Monday that 584.69 MMcf/d is still shut in in the Gulf of Mexico. This is equivalent to 4.75% of the daily production of gas in the Gulf, which is approximately 12.3 Bcf/d. In mid-December, the shut-in amount was pegged at 594.29 MMcf/d. Since Sept. 11, 2004, 150.710 Bcf of natural gas has been shut in due to Ivan, which is equivalent to 3.387% of the Gulf’s yearly production.

The unseasonably warm weather and above average storage levels have analysts pondering what the end of the heating season might bring in the way of supplies and prices.

“I think [winter] ending inventories will be in the neighborhood of 1,300 to 1,400 Bcf,” said Kyle Cooper of Citigroup. He said, however, that was not consistent with gas prices over $6, and how much lower prices might fall was uncertain since “this market has a great propensity to disregard bearish information.”

He suggested that there was a mentality that “we’ve got gas now, but when it gets hot in the summer we won’t. At some point the market has to wake up to reality and see the storage for what it is and that is very bearish. How long that takes is unclear, but it’s coming.” He added that going beyond spring and into early summer, if weather doesn’t show up to curb injections, the price environment could continue to weaken.

“Weak, however, is a relative term. I don’t think we are going back to the $2 level,” Cooper said. “The only time there have been higher storage levels to begin the month of January was 2002 and prices got to $1.85, but we are not in that era. A $4 handle is not out of the question. Longer term I think we are in a $4 to $6 range.”

©Copyright 2005 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.