With the expectation that the injection season will end with gas storage at 200 Bcf above the five-year average, Lehman Brothers cut its price forecast for the rest of the year to $7/MMBtu from $7.75/MMBtu “to reflect the turmoil that the oversupply may cause in the market in the next several months.”

Additionally, analyst Thomas Driscoll wrote in a Friday research note, the firm lowered its 2008 price estimate to $7.50/MMBtu from $8/MMBtu. “We cannot rule out a return to prices near 2006 lows as we believe storage levels may soon exceed last year’s record levels.”

Driscoll noted that to keep storage from exceeding last year’s levels, the industry’s injection rate needs to go from levels that are 0.8 Bcf/d stronger than weather-normalized five-year averages to 1.5 Bcf/d below five-year averages. He pointed out that during this five-year period, hurricanes reduced average production by an estimated 0.75-1 Bcf/d.

“A 2-2.5 Bcf/d slowing in injection rates may be difficult to achieve without sharply lower gas prices or extraordinary weather,” he conceded.

Analysts at Friedman, Billings, Ramsey & Co. Inc. also have cut their gas price forecasts to $7.49/Mcf from $7.60/Mcf for full-year 2007 at Henry Hub and to $7.50/Mcf from $8/Mcf for full-year 2008.

Gas market bulls have been watching for tropical storm development. And Driscoll pointed out (optimistically?) that “most of [the] hurricane season remains ahead of us — over the 1996-2006 period 23% of GOM [Gulf of Mexico] storms showed up in June or July. Nine of the 10 most-impactful storms showed up in September-October (the exception was Katrina in August 2005).”

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