Cash prices played catch-up with exuberant futures Friday as the market digested news of additional production and drilling cutbacks. Cash averages recorded double-digit gains at nearly every point across the country.

The physical market climbed at all points Friday with an average rise of 17 cents, and futures continued Thursday’s inventory report-driven gains as a major Canadian producer announced shut-ins and reduced drilling expenditures. At the close of futures trading March had risen 11.7 cents to $2.684 and April had added 11.1 cents to $2.824. March crude oil rose 93 cents to $103.24/bbl.

Physical and futures tended to converge. The Henry Hub on Friday was quoted just shy of $2.70, almost 20 cents higher on the day and within two cents of the March futures close.

A Great Lakes buyer was caught off guard by the rise Friday. “We wanted to top off supplies for our customers, but then when we saw what the prices were we backed off,” said a Michigan marketer.

“We thought we were looking at some more heat coming in next week, but then we got another weather report that shows that might not be the case,” he said. The marketer also said his company was looking pretty good for its blended purchases for the month.

Prices for weekend, Monday and Tuesday gas into Chicago citygates, Michcon and Consumers all made gains of just under 20 cents.

Temperatures in the area were forecast to drop Monday, but remain above average. The Weather Channel forecast the high in Detroit Monday would fall to 38, down from Friday’s 44, but above the seasonal average of 35. In Chicago Friday’s high of 48 was predicted to slide to 43 Monday, well above the normal high this time of year of 36.

A California trader attributed gains at West Coast points to surging futures. “Prices pretty much followed Nymex, a trader said. He added that reports of Canadian producer Encana shutting in production and scaling back drilling “probably juiced the market as well.”

Calgary-based Encana Corp. said it was cutting back North American natural gas supply by up to 600 MMcf/d this year through reductions to capital investments and by shutting in production. (see related story).

Gas for delivery over the weekend, Monday and Tuesday into PG&E citygates was up close to 15 cents, and gas at Malin rose by a few cents more. At the SoCal border quotes rose by a dime.

Futures traders noted some encouraging developments seeming to augur higher prices. Adherents of Market Profile observed a change in chart patterns. “This is going to look pretty good on the weekly charts,” said Tom Saal, vice president at INTL Hencorp Futures in Miami.

Saal expects Tuesday’s trading to fill Friday’s value area at $2.631 to $2.699 [March futures] before venturing higher to test $2.938 to $3.004. Adding credence to the Market Profile methodology was the market’s ability Friday to successfully test targeted value area at $2.729 to $2.781. Saal is not specific in his timing, but typically prior-day value areas “are tested the next day.”

Analysts suggest the day’s advance was additional short-covering and not interest in the long side of the market. “This market climbed higher again [Friday] on what appeared to be a further round of aggressive short-covering,” said Jim Ritterbusch of Ritterbusch and Associates. “Although the advance of the past couple of sessions appears much exaggerated given the comparatively modest miss in [Thursday’s] storage report, we will continue to emphasize the reluctance on the part of the large speculators to press the short side within what is shaping up to be an extended consolidation phase. Fundamentally, recent announced production cuts are going head-to-head with the weather-inspired sharp expansion in the supply surplus.”

Going forward, Ritterbusch sees “this battle to be won by a further stretch in the supply overhang as the market’s current consolidation is restricting fresh institutional selling interest.”

Weather forecasts show pervasive cold in the Western U.S and a moderate East. WSI Corp. of Andover, MA, in its 11- to 15-day outlook said, “With the exception of the northwestern U.S., below-normal temperatures are now forecast over most of the western half of the country. Anomalies as cold as 7 degrees below normal are anticipated over the southwestern U.S. Above-normal readings are expected to remain confined to the Eastern Seaboard.”

©Copyright 2012Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.