Natural gas yesterday traded with the negative node and settled -2.26% down at 114.8 came under heavy selling pressure on Monday, re-approaching a ten-year low hit earlier in the month as sentiment on the heating fuel remained downbeat amid ongoing concerns over elevated U. S. supply levels. Weekly storage data from the U. S. released last week showed that natural gas storage in the U. S. rose by 11bcf last week. The build came about two weeks earlier than usual and was the earliest seasonal increase in stored supplies since 2007. Total U. S. natural gas storage stood at 2.380 trillion cubic feet as of last week, 47% above year-ago levels and 54% higher than the five-year average. Latest forecasts from the NOAA show above-normal temperatures covering most of the U. S. into early April, while a large portion of the eastern U. S. will see that weather pattern through June. Early injection estimates for next week’s storage data range from 43bcf to 58bcf, compared to the five-year average decline for the week of 8 billion. Supplies rose by 7bcf in the same week a year earlier. Natural gas prices have plunged almost 13% since the beginning of March and are down nearly 24% since the start of 2012.

There are some signs that the market is tightening as cheap gas prices have prompted more industrial use and some additional utility fuel switching from pricier coal. They have also led to a steep decline in dry gas drilling and forced some producers to cut back output at uneconomic wells. But a huge surplus in storage and the onset of spring a time when heating and cooling loads typically slow - means that the recent price slide may not be over. After a cool start to the week, AccuWeather. com expects temperatures in the Northeast and Midwest, key gas-consuming regions, to warm to above normal by midweek, but daytime highs of about 60 degrees Fahrenheit (15.6 Celsius) will fall well short of the record readings seen over the last two weeks.

Storge

Last week's U. S. Energy Information Administration storage report showed total gas inventories climbed slightly to 2.380 trillion cubic feet, still a record high for this time of year and more than 800 billion cubic feet, or nearly 55 percent, above the five-year average. The build came about two weeks earlier than usual and it was the first time in five years that storage registered a gain for that week.

Storage is likely to finish the month at a record high of about 2.45 tcf, more than 55 percent above normal and easily beating the previous March 31 record of 2.148 tcf set in 1983. Early injection estimates for Thursday's EIA report range from 20 bcf to 58 bcf versus last year's adjusted build of 7 bcf and the five-year average decline for that week of 8bcf The huge storage overhang could drive prices lower this spring as seasonal weather demand fades and then pressure prices again late in the Aprilthrough- October stock-building season if storage caverns fill to capacity and force more gas into a well-supplied market.

PRODUCTION STILL HIGH

High gas production, primarily from shale, has put pressure on gas prices over the last year, but traders said recent steep declines in gas drilling have stirred expectations that low prices would finally force producers to slow record output. Gas prices on Friday again failed to react to Baker Hughes data showing the gas-directed rig count fell for the 11thstraight week to 652, its lowest level since May 2002, when 640 rigs were operating. Despite the steady decline in gas drilling, the slowdown has yet to be reflected in pipeline flows, which are still estimated to be at or near record-high levels. The U. S. Energy Information Administration (EIA) on Thursday will issue its gross natural gas production report for January after reporting a slight drop for December late last month.

Planned output cuts by producers could trim more than 1 bcf per day from flowing supply, but analysts and traders say the cuts are not nearly enough to significantly tighten supplies. While producers have shifted spending away from pure dry gas prospects to higher-value oil and gas liquids plays, market note those wells still produce plenty of associated gas that partly offsets any reductions in dry gas operations. But market does not expect any major slowdown in gas output until later this year.

SIGN OF A BULL RUN

Cheap gas has helped tighten the supply-demand balance this year as manufacturers use more of the fuel and utilities switch to gas from pricier coal to generate power. Nuclear plant outages have also been running above normal for the last month or so, adding as much as 1 bcf, or 1.5 percent, to potential daily gas demand. Gas is the fuel typically used to make up any lost nuclear generation. On the supply side, low prices have slowed dry gas drilling and forced output cuts by several producers, which could trim 1 bcf or more from daily output. But market has mostly shrugged off signs that the market has been tightening. Until production shows some concrete signs of slowing, we expect much upside, at least until summer air conditioning loads pick up.

In recent weeks, several companies have announced plans to cut gas production around the nation, but market say the low prices are also opening up new markets. When the shale drilling boom was starting in 2008 the average price for a unit of gas was about $8. Two years ago it was down to $5.50, and now it's dropped to about $2.50. Part of the reason is that the shale gas formations became productive more rapidly than expected, as thousands of new wells have been drilled nationwide.

Industry reports note that the national count of active new gas drilling rigs fell to 775 in early February, down from about 1,500 in 008. Yet Klaber said that the low prices create opportunities for more people and industries to use the product. For example, some drilling companies are focusing more on the so-called "wet gas" that sells for a higher price because it can be transformed by refineries into consumer products such as plastics and fertilizer. Last month, Chesapeake Energy of Oklahoma City said it is reducing the number of new dry gas drilling rigs from 47 to 24 this year. In addition, it immediately cut existing production by about 500 million cubic feet per day, adding that if low prices persist, it may double the cut, to 1 billion cubic feet per day. The company said that about 85 percent of its nationwide drilling expenditures this year will be toward the more profitable wet gas. A spokesman for Chesapeake didn't respond to a request for comment. Experts say the companies have ways to cushion the low prices. It's called hedging, and business people have used such tools for hundreds if not thousands of years, said Sara Moeller, a professor of business at the University of Pittsburgh.

A government report issued last week predicted that at the end of March, the amount of natural gas that companies are storing is expected to be the highest since 1983. Those unsold reserves could push prices even further down. But she noted that the drilling companies are just one part of the industry. "What may be tighter times for the producers becomes incredibly positive for all the other people in the supply chain," she said. She said that means a big piece of the puzzle on long-term trends is how quickly consumers, power plants and refineries increase their use of natural gas. And while oil and gas companies know how to use hedging to smooth price drops, that tool doesn't work forever, noted Jay Apt, a professor of technology at Carnegie Mellon.

OUTLOOK:

Since market has dropped below 140 level prices are continuous to see pressure with down channel looking to test the support at 110.80 and below that 102.60 level can be seen looking towards the fundamentals. But as said above that a production cut is due in the market if any news hit the news we can see a good bounce back in prices back again till 126.20 and a break of the same can test 50dma that is at 161 level.