US GAS : Futures Slump Despite Modest Inventory Build
07/06/2012| 03:54pm US/Eastern
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--Futures end lower despite bullish inventory report
--EIA: Inventories rise 39 billion cubic feet
--47 bcf build was expected
(Adds more detail in paragraphs seven through 15.)
By Dan Strumpf
NEW YORK--Natural-gas futures finished sharply lower Friday, shrugging off a closely watched government report that suggested demand for the fuel remains strong.
Natural gas for August delivery settled lower by 16.9 cents, or 5.7%, at $2.776 a million British thermal units on the New York Mercantile Exchange.
Futures briefly shot above $3 a million British thermal units on the New York Mercantile Exchange in the minutes following the Energy Information Administration's weekly inventory report, which showed natural-gas inventories rose 39 billion cubic feet last week. But they pared all of their gains and turned sharply lower later in the day.
Several market participants said the market still can't support prices as high as $3, amid elevated U.S. gas production and indications that demand might slow later in the month.
"The fact remains that we don't have $3 gas--there's just too much gas coming out of the ground," said John Woods, an independent trader at the New York Mercantile Exchange.
Analysts surveyed by Dow Jones Newswires had expected inventories to rise 47 billion cubic feet last week.
Market participants closely watch the EIA's weekly natural gas inventories report for cues on supply and demand. A string of relatively modest inventory builds have helped lift prices and ease fears that inventories will run out of room this fall.
The small builds have come as high temperatures across the U.S. have boosted demand for cooling and raised natural gas consumption among electrical utilities.
Inventories as of June 29 stood at 3.102 trillion cubic feet, according to the EIA. That's 24.1% above the year-ago level and 22.7% above the five-year average level for the same week.
High gas inventories have weighed on prices all year, amid booming production from shale gas fields and weak demand for gas-fired heating. The recent pick-up in cooling demand has helped lift prices from the 10-1/2-year low reached earlier in the year, but prices remain low by historical standards.
This time last year, front-month gas futures were above $4.20/MMBtu.
Still, weather forecasts continue to predict above-normal temperatures across the U.S. in the near term, suggesting the demand for cooling is likely to remain strong.
"Right now there are longs that are entering the market based on this heat wave," said Rich Ilczyszyn, chief market strategist at iiTrader in Chicago. "Demand is going to click up for sure, and it has the last couple weeks."
That could change once temperatures moderate.
"Once the weather rights itself and we get back to a more normal range, consumption will come back down," he said.
Write to Dan Strumpf at dan.strumpf@dowjones.com
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