The freefall in natural gas futures prices of the last few weeks received a small reprieve on Friday after the February contract managed to eke out a 2.1-cent gain to close the week at $2.343. However, market bulls might as well cool their heels as Friday’s close marked a 32.7-cent decline from the previous week’s close.

Steve Blair, a broker with Rafferty Technical Research in New York, said bulls are pretty scarce right now because there are currently no factors for the market to get upside traction off of.

The week offered up a number of milestones for natural gas bears as the front-month contract took out long-term support and zeroed in on a new 10-year low. Long-term support at $2.409 from Sept. 24, 2009 was breached on Thursday and the last time spot futures traded lower than Friday’s $2.283 was nearly 10 years ago on Feb. 26, 2002 when the March contract notched a low of $2.278. The week also saw the price of front-month natural gas futures fall below Appalachian coal for the first time ever (see Daily GPI, Jan. 19).

Add to that Thursday’s report from the Energy Information Administration that only 87 Bcf was removed from storage for the week ended Jan. 13, and the downward influence on the market is pretty significant. Inventories are now 539 Bcf higher than last year at this time and 566 Bcf above the five-year average of 2,724 Bcf.

“We’re getting on to late January and the sun is out in New York City,” said Blair. “Surprise, we’re looking at a little bit of winter weather with some actual snow, but that is expected to be followed by rain as it warms back up again in time for the week.

“This market has more gas than it knows what to do with. We’ve got almost a 550 Bcf supply overhang year-over-year, so there is no reason for the market not to go lower. There are people I talk to who are murmuring about a $1 handle. I’m not sure we’ll see that, because at what point do the shut-ins really ramp up. We can thank shale gas and the lack of a winter for this market’s current predicament. The next thing we’ll be talking about is when the industry will run out of storage space. It won’t happen this winter, but what happens when we enter the next injection season with a record amount of gas in storage? There are several different scenarios. The gas is going to be pushed into the cash market, which will push prices down even further, or we are going to see a massive round of shut ins.”

Citi Futures Perspective analyst Tim Evans said futures prices on Friday appeared to stabilize “for the moment” and that colder temperatures over the past week should translate into a sharply higher storage withdrawal in the next report, on the order of 160 Bcf.

“That would still be below the 173 Bcf five-year average, but it would be a big step up from [Thursday’s] 87 Bcf mark,” he said. “There’s also a pool of cold air over western Canada in the 11-15 day forecast that could potentially break down into the U.S. at some point. Add in the idea that the downside risk simply becomes compressed as the price falls, and we think there’s a case for at least some short-term profit-taking.”

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