Prices fell about 10-20 cents across the board Thursday in what traders generally considered as “reality” catching up with the gas market. But one producer is expecting at least a mild rally today after the screen turned a negative morning into an afternoon settlement that was a little more than a nickel higher.

Although AGA’s Wednesday afternoon report of 140 Bcf taken out of storage last week exceeded most expectations, the bearish Nymex response immediately afterward and continuing futures softness Thursday morning were the catalyst that set off the large declines in physical gas numbers, a marketer said. But after a blast of winter two weeks ago provided some genuine weather support for prices, it’s been a case of “when, not if” a major retrenchment would begin, he went on. Traders felt gas was overvalued in light of mild weather in most regions and storage facilities still being half full near the end of withdrawal season, but they could only tag along as strength in the overall energy futures complex pointed the way higher, he said.

“Prices are finally starting to make sense now after being unnaturally high for a long time,” according to a Gulf Coast trader. Mild weather fundamentals have not changed much since the cold spell in late February and early March, “but it seemed like the futures and cash markets were ignoring that until today.”

A marketer in the Midcontinent had these comments: “I didn’t think we would be up here [in the $3 price area] in the first place, so I would like to call [Thursday’s declines] a ‘correction.’ But Nymex rebounded up to its highs for the day after cash was done. If this is supposed to be a weak market, it sure is not acting like it. It is 70 degrees outside so fundamentally there is no demand, but that doesn’t seem to matter anymore.”

Although they were lower on average, CIG and Cheyenne Hub prices climbed nearly a dime as trading proceeded when Public Service Co. of Colorado came out buying late due to colder weather in the Denver region, a western source said. Another trader saw continuing Opal Plant maintenance and covering of short supply positions as factors in the late Rockies resurgence.

An intrastate Texas trader expressed surprise at futures “holding up so strongly” in the afternoon. His company was already guessing a figure of 60 Bcf for next week’s AGA storage report. “We’re not seeing storage withdrawals picking up much” even with the end of the normal withdrawal season rapidly approaching, he said. He was seeing almost no business from utilities in Texas, explaining, “They often have must-take volumes in the last month of winter term deals; between that and storage, they have very little need for spot gas.”

The Texas trader was among several who thought it odd that a screen consistently in the red during the morning was able to turn around and generate a positive reading that afternoon. A Gulf Coast producer thought the Nymex reversal will be the springboard that cash gas needs for its own rebound this morning. She noted that snowy and frigid weather had either already returned or would be moving into northern states from the Pacific Northwest through the Midwest by the weekend, and another cold front will be occupying parts of the Northeast by Friday night. Cash has been following April futures pretty closely lately, the producer added. She reported getting bids in the high $2.80s for weekend gas at Henry Hub and TGT Zone SL Thursday afternoon; that was a dime or so above where those points averaged yesterday.

A couple of sources indicated they were looking forward to a quieter market in the first half of next week when many in the trading community will be in Reno, NV for NGI‘s GasMart/Power 2002 trade fair.

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