US GAS: Futures Rebound As February Contract Expires

Published: Jan 27, 2012

By Jerry A. DiColo
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Natural gas futures rose Friday, rebounding on the last day of trading for the February contract on signs colder weather could be ahead for parts of the U.S.

Natural gas for February delivery settled 7.3 cents, or 2.8%, to end at $2.678 a million British thermal units on the New York Mercantile Exchange.

Trading can be volatile on the day a contract expires, and the more heavily traded March contract settled 3.8% higher at $2.756/MMBtu.

Futures gained as investors turned to the possibility that cooler temperatures on the U.S. east coast and in the south over the next two weeks may help to increase gas-fired heating demand.

Forecaster MDA EarthSat said its 11-to-15 day forecast pointed to colder-than-normal weather in these regions.

"The latest weather forecasts are coming out colder than normal, so we might actually get some sustained winter weather," said Stephen Schork, head of trading advisor Schork Group.

A decline in temperatures should help reduce the massive buildup in natural gas inventories that has pushed futures prices to the lowest levels in a decade this month.

Roughly half of all U.S. homes are heated with natural gas, and a milder-than-usual winter has squelched usage and sent prices sliding.

On Thursday, a government report offered some optimism for traders betting on higher prices. The Energy Information Administration's weekly inventory report showed natural gas inventories during the week ended Jan. 20 fell 192 billion cubic feet.

The figure was above the 176-bcf average draw anticipated by analysts polled by Dow Jones Newswires. Still, inventories remain at their highest level ever for this time of year.

Still, some analysts believe that time is running short for winter weather to make a substantial dent in the glut.

"Traders recognize that temperatures have been unseasonably mild recently, and they see this week's drawdown as a one-time bullish deal," said Peter Beutel, head of trading advisor Cameron Hanover, in a client note. "We are not likely to draw as much from inventories next week or in subsequent weeks."

On Friday, Royal Dutch Shell PLC (RDSA) Chief Executive Peter Voser warned that investments in shale gas production won't be sustained if U.S. prices stay at their current levels.

"Current prices are not attractive from an investment point of view," Voser told Dow Jones in an interview in Davos, Switzerland.

Shell's CEO said he remained convinced the long-term price outlook for the commodity remained a good one.

-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155; jerry.dicolo@dowjones.com