US GAS: Futures Flat As Storage Data Eyed

Published: Feb 02, 2012

By Dan Strumpf
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Natural gas futures prices paused Thursday, as traders awaited a weekly government inventory report expected to show yet another modest decline in gas stores due to weak demand.

Natural gas for March delivery recently rose 0.3 cent, or 0.1%, to $2.385 a million British thermal units on the New York Mercantile Exchange.

The climb comes on the heels of a three-day selloff in the natural gas market that has left futures just pennies away from a 10-year low.

Those declines have been driven by a rash of weather forecasts calling for milder-than-normal weather essentially for the remainder of winter, suggesting that gas-fired heating demand is likely to remain weak for the rest of the peak usage season.

"We've virtually recouped all the gains made last week," said Matt Smith, analyst at Summit Energy in Louisville, Ky. "There's just no respite here, or any bullish influences."

The Department of Energy's 10:30 a.m. EST is expected to show that 126 billion cubic feet of natural gas were drawn from storage last week, according to a Dow Jones Newswires survey of traders and analysts.

The figure is less than the 171-bcf draw for the same week last year, and below the five-year average draw of 202-bcf for the week.

If the storage estimate is correct, inventories as of Jan. 27 will total 2.972 trillion cubic feet, about 26% above the five-year average level for the week.

The National Oceanic and Atmospheric Administration said that above-normal temperatures are expected across the country in February. The area of above-normal temperatures will stretch further into the northern and western U.S. than had been earlier projected, NOAA said.

Natural gas futures have fallen sharply for months due to the mild winter that has gripped the country. About half of all U.S. homes use natural gas for heating, and typically prices rise in the winter due to higher demand.

In addition to weak demand, the market is contending with record levels of production due to new technologies that have unlocked vast quantities of gas in so-called shale formations across the country.

Earlier this month, natural gas futures fell to a 10-year low of $2.322/MMBtu. Prices spent the subsequent week rallying after the country's No. 2 gas producer, Chesapeake Energy, said it would cut production by 0.5 billion cubic feet a day due to low prices. But the mild weather has dashed expectations that the rally would continue.

"It does not appear that we are likely to get any more, near term" production cuts, said Peter Beutel, head of the trading advisory firm Cameron Hanover, in a research report. "What we have had is what we may be getting and that's it."

Meanwhile, natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $2.3125/MMBtu, according to IntercontinentalExchange, down from Wednesday's average of $2.3195. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $2.63/MMBtu, down from Wednesday's average of $2.704.

-By Dan Strumpf, Dow Jones Newswires; 212-416-2818; dan.strumpf@dowjones.com