U.S. GAS: Futures Retreat in Wake of Steep Rally

Published: Oct 03, 2012

By Dan Strumpf


NEW YORK--Natural-gas futures fell sharply Wednesday, as traders gave back some of the market's recent steep gains and prepared for a closely watched survey of gas stockpiles.

Natural gas for November delivery settled 13.6 cents, or 3.9%, lower at $3.395 per million British thermal units on the New York Mercantile Exchange.

Futures posted their first retreat in more than a week, as traders agreed that prices had climbed too quickly in recent days to support the still-modest level of autumn demand for natural gas.

"Gas was way overpriced," said Rich Ilczyszyn, chief market strategist at iiTrader.com. "I looked at about every pricing level there is, and I could not figure out why November natural gas was as high as it was at $3.50."

November gas settled above $3.50/MMBtu on Tuesday for the first time since December.

Despite Wednesday's pullback, front-month gas futures are still up 23% from their recent low of $2.762 reached in mid-September, in a rally driven largely by expectations for a sharp drop in temperatures across much of the country in the coming weeks. About half of all homes are heated using natural gas, and home heating is one of the biggest sources of gas demand in the U.S.

Private forecaster Commodity Weather Group said it sees below-normal temperatures across the Midwest and Northeast in its six- to 10-day forecast--though not as low as previously expected.

Autumn is typically a period of weak demand for natural gas, straddling the summer cooling demand season and the winter heating demand period. Analysts and traders said temperatures have to drop significantly more in order to bring prices much higher.

"I just don't see the demand," said Mr. Ilczyszyn.

Meanwhile, traders are looking ahead to tomorrow's closely watched weekly inventory report. The report, to be released by the Energy Information Administration, is expected to show a smaller-than-normal injection of 70 billion cubic feet into gas stockpiles, according to a survey of analysts and traders by Dow Jones Newswires.

The relatively modest injection comes amid elevated demand from utilities and the first signs of gas-fired heating demand. Last year, 101 bcf were added to storage for the same week, while the five-year average injection is 78 bcf.

"The market is taking a look at the record storage levels that we have," said Gene McGillian, analyst at Tradition Energy.

If the storage estimate is correct, inventories as of Sept. 28 will total 3.646 trillion cubic feet, about 8% above the five-year average and 8% above last year's level for the same week.

http://www.firstenercastfinancial.com/news/story/50318-us-gas-futures-retreat-wake-steep-rally