Warmth sinks natural gas futures price

March 6, 2012 8:45 am

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Natural gas futures tumbled to a one-month low in New York as forecasts of above-normal temperatures across the continental U.S. signaled reduced demand for the heating fuel.

Gas, the worst performer this year in the Standard & Poor's GSCI commodity index, fell as much as 5 percent. Commodity Weather Group LLC in Bethesda, Md., said temperatures may exceed 70 degrees in the mid-Atlantic and southern Midwest in the next two weeks. Gas supplies were 45 percent above the five-year average in the week ended Feb. 24.

"The winter is over, literally and figuratively," said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. "The focus now will be on whether withdrawals from gas inventories will turn into injections."

Natural gas for April delivery fell 10.6 cents, or 4.3 percent, to $2.378 per million British thermal units on the New York Mercantile Exchange after dropping to $2.361, the lowest price since Feb. 2. Gas is down 20 percent this year.

Hedge funds reduced bullish bets on natural gas by the most in eight months as forecasts for warmer-than-usual weather in the eastern U.S. signaled a drop in heating-fuel use with supplies near a seasonal record.

Money managers cut wagers on rising prices for the first time in seven weeks, reducing positions by 56 percent in the seven days ended Feb. 28, according to the Commodity Futures Trading Commission's Commitments of Traders report. It was the biggest decline since June 28.

Heating demand in the U.S. may be 23 percent below normal from March 11 through March 15, data from Weather Derivatives in Belton, Mo., show.

Inventories of gas totaled 2.513 trillion cubic feet as of Feb. 24, according to the Energy Department. Storage levels may reach a record 3.983 trillion in October and 4 trillion a year later, the agency said in its monthly Short-Term Energy Outlook Feb. 7.

"Tremendous success in shale-gas drilling continues to result in supply outstripping demand, resulting in inventory withdrawals over just about the entire winter heating season underperforming versus both last year and the more normal five-year average," said Dominick Chirichella, senior partner at the Energy Management Institute in New York, in a note to clients Monday.

Stockpiles may total 2.34 trillion cubic feet by the end of the month, Mr. Chirichella said. That would be an all-time high for that time of year, Energy Department data going back to 1993 show.

Gas production in 2011 climbed 6.5 percent to a record 28.6 trillion cubic feet, according to data released Wednesday by the Energy Department.

First Published 2012-03-05 23:18:27

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