U.S. GAS : Futures Drop 1.1%, Await Thursday Inventory Data
06/20/2012| 04:11pm US/Eastern
--Heat wave to ebb; below-normal Northeast temperatures expected into early July
--Storage rise of 64 billion cubic feet expected, well below historical levels
--Gas storage seen at 3 tcf level reached in late August last year
(Adds price chart.)
By David Bird
NEW YORK--Natural-gas futures prices settled 1.1% lower Wednesday, pausing ahead of a weekly U.S. gas-storage report due Thursday.
Prices have been volatile in recent days, with one day's strong gains erased the next as the market responds to near-term weather forecasts. Temperatures in the Northeast, mid-Atlantic and Midwest were expected to climb toward record highs approaching 100 degrees Fahrenheit this week. But forecasts call for a drop to below-normal temperatures in the heavily populated Northeast from the weekend and into early July, while the temperatures in the Midwest and West stay above normal.
Traders anticipate the hot temperatures will spark greater demand for gas from utilities, who will need to provide more power to customers to run air-conditioning units. Market bulls hope the weather can make a significant dent in the huge glut of natural gas in storage.
The mixed picture from the weather had prices moving broadly on either side of unchanged.
July delivery natural-gas futures on the New York Mercantile Exchange settled 2.8 cents lower, at $2.517 per million British thermal units.
The market focus is on U.S. gas inventories, with analysts expecting the Energy Information Administration report due at 10:30 a.m. EDT Thursday to show inventories rose by 64 billion cubic feet last week, far below last year's 90-bcf build in storage and less than the 87-bcf five-year average build for the week.
If the forecast proves correct, the gas-storage level will climb to 3.008 tcf. Inventories didn't hit that peak until Aug. 31 last year.
A warm winter left gas at record high levels and helped sink prices to a 10 1/2-year low of $1.90/mmBtu two months ago.
But strong demand from utilities, burning cheaper gas rather than coal, has lifted prices in recent weeks to near $2.75/mmBtu. They have since calmed to near $2.50/mmBtu, a level traders said will keep gas competitive with coal and slowly whittle down the huge inventory glut.
In the June 8 storage report, the EIA said volume was 32% above a year earlier and 29.2% above the five-year level. The size of the gas glut relative to the five-year average has dropped to 666 bcf from 927 bcf at the end of March.
If estimates gathered by Dow Jones Newswires prove correct, the overhang would drop to 27% above the five-year average and 29% above last year's level for the same week.
"There is a lot of gas in the ground and its going to make it difficult to sustain any rallies," said Kyle Cooper of IAF Advisors. He said he expects prices to hold in a trading range of about $2.25-$2.75/mmBtu in the near term.
"If you start getting back over $2.75 and certainly $3, a lot of folks think coal will start getting back market share, and I'm with them," he said.
FUTURES SETTLEMENT NET CHANGE
Nymex July $2.517 -2.8c
Nymex Aug $2.555 -1.9c
Nymex Sept $2.584 -2.0c
CASH HUB RANGE PREVIOUS DAY
Henry Hub $2.57-$2.62 $2.55-$2.63
Transco 65 $2.58-$2.65 $2.59-$2.645
Tex East M3 $2.85-$3.01 $2.81-$3.10
Transco Z6 $3.75-$4.35 $3.15-$3.65
SoCal $2.76-$2.86 $2.77-$2.86
El Paso Perm $2.46-$2.51 $2.49-$2.53
El Paso SJ $2.40-$2.45 $2.40-$2.47
Waha $2.48-$2.54 $2.48-$2.52
Katy $2.52-$2.56 $2.5025-$2.58
Write to David Bird at firstname.lastname@example.org.