Moderate

August natural gas is expected to open unchanged at $2.88 Wednesday morning as analysts suggest that a short-covering rally could send prices to, if not past, the $3 threshold. Overnight oil markets were lower.

Cash natural gas prices fell on average just over a nickel Thursday as weather continued to moderate and buyers balked at buying spot gas and resorted to storage gas withdrawals. Nearly all points experienced losses, and the biggest declines were seen on New England pipelines. Eastern points were also weak, and in the Midwest, prices slipped just under a nickel.

No points were left untouched Thursday as overall cash prices tumbled on average 13 cents. The Northeast suffered not only from a moderate weather outlook but also the arrival of copious quantities of liquefied natural gas (LNG) that entered the market.

Whether the natural gas market is “proactive or reactive” today doesn’t matter much in the grand scheme of things, according to Bentek Energy’s Jack Weixel. Like the chicken or the egg metaphor, asking which came first, gross gas production or dry gas production is irrelevant when considering that today output is 20 Bcf/d higher than in 2006. The real question is how will the market adapt, or rather, what’s the market going to do with all the production?

Continuing high natural gas production levels driving prices to the sub-$2 level raise concerns of an eventual production bust that could result in higher prices for producers, according to a market report Thursday by FERC’s Office of Enforcement (OE).

Generally moderate weather predictions, such as the Chicago area reaching the low to mid 50s Tuesday, didn’t suggest any likelihood of spot prices increasing Monday. But cash traders either thought otherwise or were looking ahead to near the end of the week, when cold fronts would be moving into such areas as the Midwest.

North American producers plan to target their 2012 capital expenditures mostly to oil and liquids-rich basins, with the Permian Basin and West Texas leading the list, according to a new spending survey by Barclays Capital.

As a Northeast marketer had predicted the day before, prices continued to move higher Friday (including several spikes) at citygates in his region, but moderate softness reigned in the rest of the market. The Northeast was bracing for a cold blast with temperatures bottoming out around freezing or lower. But although similarly frigid conditions were in the forecasts for the Midwest as far south as the Midcontinent and for the Rockies, those areas failed to find enough heating load to lift prices.

The Federal Reserve Board took notice of an expanding shale gas industry in parts of the country as the national economy grew at a moderate pace, according to a report released Wednesday.