US GAS: Futures Bounce Back As Storage Report Hints At Demand

Published: Feb 02, 2012

By Drew FitzGerald
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Natural gas futures jumped 7.2%, after a weekly inventory report suggested slightly higher demand for the fuel.

Natural gas for March delivery settled 17.2 cents higher at $2.554 a million British thermal units on the New York Mercantile Exchange. The contract rebounded to a level last seen on Tuesday, when futures plummeted 7.8% amid a slew of bearish news.

The U.S. Energy Information Administration said gas inventories fell 132 billion cubic feet last week. Analysts on average expected a draw of only 126 billion cubic feet, according to a poll by Dow Jones Newswires.

Futures traded narrowly leading up to the inventory report before jumping on the news that homes and businesses appeared to be using more natural gas for heating and power production.

Analysts still said the modest inventory surprise couldn't account for all of the jump in prices.

"What we're seeing here is more than a reaction to the inventory number," Citi Futures Perspective analyst Tim Evans said. "What we're also seeing is some reaction to the volatile price action itself."

Over the last seven sessions, natural gas futures have been marked by dramatic moves. At the close over that span, prices have risen or fallen more than 4.5% five times--and more than 6.9% three times.

The rally also was helped by forecasts that temperatures across much of the U.S. will drop next week, adding to demand for gas-fired heating.

However, prices have been pressured all winter by milder-than-normal temperatures and abundant supplies. Vast amounts of the fuel have been tapped in shale rock formations by new drilling techniques.

Despite Thursday's price spike, natural gas futures still are close to a 10-year low of $2.330.

-By Drew FitzGerald, Dow Jones Newswires; 212-416-2909; andrew.fitzgerald@dowjones.com