Both the cash and futures marched lower Wednesday. The looming question of where the current storage surplus combined with robust production will find a home come October continues to pressure the market. Futures slipped below $2, establishing a new 10-year low. Most markets were off by about a nickel, and Northeast points hovered in the vicinity of unchanged.

At the close of futures trading May had retreated 4.7 cents to $1.984 and June had given up 4.7 cents also to $2.105. May crude oil had risen $1.68 to $102.70/bbl.

Algonquin Citygates was about the only actively traded cash point to show a gain, and other Northeast locations were either unchanged to a few pennies lower. “Cool, damp, blustery and even snowy conditions will persist across the Northeast [Wednesday], said meteorologist Dan DePodwin, and he added that “a moderating trend in temperatures will begin on Thursday as high pressure dominates the weather and the brisk northwesterly flow subsides. Warmer and drier weather should continue into the first part of the weekend before the next storm system pushes rain back into the region.”

Thursday gas into the Algonquin Citygate rose more than a nickel and deliveries on Tennessee Zone 6 200 L were down a penny. Quotes on Iroquois Waddington fell about 4 cents.

A MidContinent marketer took issue with the idea that there was little load to support prices. “A lot of people are buying for storage and there is load in Oklahoma. As long as gas is at these prices, people are putting it into storage. It might get cheaper, but we have no idea where the bottom to the market is going to be.

“Some people like marketers have not choice but to hedge [their purchases] and they are looking at the spreads. Others will buy outright. If you are a Dow Chemical you know your output costs, you know your input costs so you can hedge it. Everyone has a different situation.”

Outages and maintenance on the Socal system continue to ripple through West Coast prices. Socal Citygate trades just a few pennies under PG&E Citygate as maintenance at points feeding into SoCal Border temporarily limit supplies. “It is tight, because if you can’t get gas to the border because of TW Needles being out and a reduction in North Baja, then people have to buy the SoCal Citygate,” said a California trader.

Transportation from SoCal Border to SoCal Citygate was about 11 cents, “but it’s trading about 3 cents higher than that now,” said the trader. “You can’t get the transportation, so you have to buy the Citygate.”

SoCal Citygate and Socal Border each fell by about a nickel and PG&E Citygate was off close to 3 cents. Malin eased 4 cents.

Gulf points were fairly representative of the broader market decline. Quotes at the Houston Ship Channel slipped a few cents and the Henry Hub was off almost a dime. Tennessee 500 L was heard a nickel lower and Texas Eastern E LA shed 3 cents.

Futures traders noted that the market took its time probing under $2. “The market just sat for most of the day at $2.00-2.01 and finally broke through at the end of the session. It didn’t look like there were a lot of stops and prices didn’t follow through lower,” said a New York floor trader.

Sub-$2 has not been seen in more than 10 years. The last time a front-month futures contract dipped below $2 was during January 2002.

“We are in new territory here, and I think we will work lower Thursday before we eventually test $1.80 to $1.85 maybe by next week. There is plenty of supply, but how many people are going to sell this market at $1.90 or $1.95? What is the potential on a trade like that?” the New York trader said.

Should Thursday’s Energy Information Administration storage report strike a bearish cord, some may be willing to do just that. Industry estimates of the storage injection are in close proximity to the five-year average. Last year 7 Bcf was injected and the five-year average stands at a 22 Bcf increase. Tim Evans of Citi Futures Perspective calculates a build of 13 Bcf and Ritterbusch and Associates is looking for an increase of 23 Bcf. Industry consultant Bentek Energy sees an injection of 18 Bcf.

The heavy supply surplus continues to act like a wet blanket on any price increase, and Tim Evans of Citi Futures Perspective calculates a season-ending implied storage peak well above current demonstrated peak capacity.

“The problem is how to squeeze this implied peak level down below the demonstrated capacity [about 4.1 Tcf],” said Evans. “We can anticipate a minor upward revision to that capacity when the DOE [Department of Energy] updates its 2011 estimate but wouldn’t look for that to solve the problem.”

Evans forecasts a build of 13 Bcf for Thursday’s inventory report, and utilizing his supply-demand model said, “the storage surplus would decline moderately to 907 Bcf as of April 27. While an improvement compared with the consistent bearish storage data of the September-March period, the larger issue of squeezing available supply into storage capacity will likely continue to weigh on prices. In fact, the market may have the option here of ignoring a decline in the storage surplus to a much lower level — say 500-600 Bcf — and still not generate a price reaction.”

Students of Elliott Wave and retracement analysis see just one barrier to a prolonged price decline. “[We] still see $2.087-1.964 as the only area of contention standing in the way of a dump to $1.074-0.876,” said United-ICAP analyst Brian LaRose. “With the seasonal trend pointing down from May until August, the possibility for a reversal from this support zone looks doubtful. [We] suspect if the rest of the petro complex works lower from here, natgas could see $1.074-0.876 well before our August target.”

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