Natural-gas futures paused just above $4 a million British thermal units Thursday after dropping to a fresh six-year low, but that support looks tenuous as industrial demand continues to slump, the chances of a cold snap diminish and inventories swell.

Front-month gas futures on the New York Mercantile Exchange settled at $4.078/MMBtu, the lowest since Nov. 15, 2002, after the U.S. government posted data showing a much smaller-than-expected draw from gas inventories, which continue to brim at above-average levels. The front-month Nymex contract is now down 70% from the high hit last July.

The contract did, however, manage to hold just above $4/MMBtu, with traders reluctant to breach the psychologically important level with the March contract expiring in six days and with a few weeks of winter remaining, market participants said. Still, producers already slashing spending may have to haul back on the reins even harder to bring output in line with fast-dissipating industrial demand for the fuel.

"I'm surprised the market held at $4," said Gene McGillian, an analyst with Tradition Energy, a Stamford, Conn., brokerage. "It's pretty inevitable that we're going to be testing that level again and pushing below it."

 
   Drop Adds Pressure To Producers

Thursday's price drop came as several gas and oil producers posted fourth-quarter earnings hurt by the plunge in energy commodities prices. Apache Corp. (APA) swung to a fourth-quarter loss on a $3.6 billion write-down on the value of its oil and gas properties, while Williams Cos. (WMB) posted a drop in profit and again cuts its 2009 spending targets. XTO Energy Inc. (XTO) also said its fourth-quarter profit fell, though it stuck by its already-reduced spending plans.

These companies, plus others such as No. 1 U.S. gas producer Chesapeake Energy Corp. (CHK), Petrohawk Energy Corp. (HK) and Devon Energy Corp. (DVN), have watched their market values crater since summer as gas prices have plunged by more than 70% since July.

An unexpectedly large boom in gas output, particularly from new shale reservoirs, brought fresh supplies to a market starting to reel from the economic downturn. Big industrial users including Dow Chemical Co. (DOW), E.I. DuPont de Nemours & Co. (DD) and Alcoa Inc. (AA) have cut staff and reduced gas demand as a barrage of dismal economic data dims the outlook for a commodity price recovery.

"Demand is way off from where it has been," said David Ellsworth, vice president of fuels at Exelon Corp. (EXC) unit Exelon Generation. "Unfortunately, a reaction in supply has been slower than people might've anticipated, or hoped it would be."

Ellsworth added that U.S. natural gas production this year is still about 4 billion to 5 billion cubic feet per day more than a year ago.

The U.S. Department of Energy predicted earlier this month that industrial demand would fall 5.1% this year, with total consumption seen dropping 1.3%.

Even after slashing spending plans and laying down hundreds of drilling rigs since the autumn, producers will likely be forced by the continued decline in gas prices to cut output and capital expenditures further in the coming months, said Mike Rose, director of the energy trading desk at Angus Jackson Inc., a Fort Lauderdale, Fla., brokerage.

"I would expect natural gas producers to go along the lines of unleaded gasoline refiners and make some major cutbacks," Rose said. "That's the only way they're going."

 
   Bears Dominate; Some See A Bargain

Similar to when gas last fell this low in 2002, moderate temperatures in the major gas-consuming regions over the past few weeks have led to an abundance of gas in storage.

An extended stretch of subnormal temperatures would be needed to provide support for prices, traders and analysts said. However, with spring approaching, the chances of such a cold snap are fading away.

Total gas in U.S. storage as of Feb. 13 was 1.996 trillion cubic feet, 8.4% above the five-year average and 9.7% above last year's level.

"We've had a fairly decent weather scenario for the winter, but we haven't had a sustained cold period," Rather said.

Still, historically low prices are likely to spark some bargain buying, and any signs of improvement in the global economy could spark a rally, said Allen Rather, an independent energy analysts in Victoria, Texas.

"The boat is overloaded with bears," he said. "You have to wonder how long the selling is going to continue."

-By Christine Buurma, Dow Jones Newswires; 201-938-2061; christine.buurma@dowjones.com

(Cassandra Sweet in San Francisco and Jason Womack in Houston contributed to this report.)