US GAS: Futures Resume Declines As Oversupply Persists

Published: Feb 03, 2012

By David Bird
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Natural-gas futures prices were trading lower Friday on expectations that near-term weather won't spark enough demand to dent a huge supply glut.

Prices failed to follow through on Thursday's sharp 7.2% rise, as updated temperature outlooks show below normal temperatures limited to a slim area of the nation's southern border and Gulf Coast into the second half of the month. Most of the country will see normal to above-normal temperatures, a persistent scenario that has slashed demand and allowed gas storage levels to balloon.

"Nearly half of the gains have been handed back, as normal-to-warmer weather outlooks refuse to break," said Matt Smith, analyst at Summit Energy.

Natural-gas futures for March delivery on the New York Mercantile Exchange were down 7.4 cents, at $2.479 per million British thermal units, after a low of $2,457/mmBtu.

Data released Thursday by the Energy Information Administration showed the level of natural gas in storage fell by a slightly greater-than-expected level of 132 billion cubic feet last week, amid a brief cold snap. But the surplus of gas in storage expanded to 25% above both a year ago and the five-year average for this time of year. In the prior week, the surplus was 21% above historical levels.

As temperatures in the Northeast U.S. flirted with the 60-degree Fahrenheit level this week, traders said the next storage report isn't likely to show a significant-enough change in storage to shift the market from its current footing. Prices remain modestly above 10-year lows hit in recent weeks, as gas output continues to set record highs, despite weather-stunted demand.

The country's No. 2 gas producer, Chesapeake Energy, recently said it would cut production by 0.5 billion cubic feet a day due to low prices. But others haven't followed through, as much gas is produced in association with crude oil or other liquids that are fetching high prices. That means that much gas that would be unprofitable to extract on its own economics, is still being produced.

-By David Bird, Dow Jones Newswires; 212-416-2141; david.bird@dowjones.com