US GAS: Futures Settle -2.2% At $2.499/mmBtu On Supply Glut

Published: Feb 03, 2012

By David Bird
Of DOW JONES NEWSWIRES


NEW YORK (Dow Jones)--Natural-gas futures prices settled 2.2% lower Friday at $2.499 per million British thermal units on expectations that near-term weather won't spark enough demand to dent a huge supply glut.

Prices shed 6.7% in the week, despite a 7.2% rally on Thursday after a larger-than-expected drawdown in natural-gas inventories.

Updated temperature outlooks show below-normal readings 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.

Along with weak demand, gas output has galloped higher, with analysts saying prices haven't fallen enough to spark deep cuts needed to bring balance and restore inventories to more typical levels.

Societe Generale cut its forecast for 2012 gas price forecast by 50 cents to $2.40/mmBtu, which would be a 13-year low. Analyst Laurent Key warned prices "easily" could touch $1.50 if supply keeps rising. He expects sustained $2/mmBtu springtime prices to trigger cutbacks and switching to gas from coal by power generators, lifting prices to $3/mmBtu by December.

Natural-gas futures for March delivery on the New York Mercantile Exchange settled down 2.2%, or 5.5 cents, at $2.499/mmBtu. Price lost 17.9 cents in the week.

Open interest in gas futures rose to a record above 1.2 million contracts this week.

"There are people willing to leverage in on the long side," said Gene McGillian, analyst at Tradition Energy in Stamford, Conn.

"But there's no underlying change" in weak fundamentals, he said. "Everybody is trying to pick a bottom here and with record open interest, we're seeing a lot of price swings that you have to be careful about reading too much into."

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