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Nov 27, 2012

U.S. GAS: Futures Steady; Under Pressure from Warm Temperatures

Published: Nov 27, 2012

By David Bird 

NEW YORK--Natural gas futures were little changed Tuesday but remained under pressure from widespread near-term above-normal temperatures.

An early, modest rally sputtered, with prices unable to gain upward momentum in the face of forecasts for unusually warm weather into mid-December.

Forecasters at WSI Corp. said Tuesday they see temperatures "unseasonably mild across the majority of the nation next week." That will reduce the all-important home-heating demand which is vital to keeping gas prices strong in the winter season.

Phil Flynn, analyst at Price Futures Group, said "a few weeks ago natural gas was soaring as forecasters gave traders the impression that we're getting ready to enter a new ice age. Now, he said, he believes "the next big move....for natural gas [is] on the downside."

Front-month December natural gas futures on the New York Mercantile Exchange were unchanged, at $3.73 per million British thermal units, ahead of the contract's expiration at Wednesday's settlement. The contract moved in a range of $3.715 to $3.774 overnight. The contract fell 17.1 cents, or 4.4% Monday, recording the biggest percentage decline in a month and the biggest penny-for-penny fall in three-and-a-half months.

Trading interest has shifted in the January contract, which was off 0.2 cent, at $3.866/mmBtu.

Commitment of traders data released Friday for the week ended Nov. 20, showed money managers holding their biggest-ever net long position in futures and options, setting up potential for further bouts of liquidation, said Tim Evans, analyst at Citi Futures. Mr. Evans said he sees potential for December gas to fall toward $3.25/mmBtu in coming weeks, if warm temperatures persist.

WSI forecasters said it will take a couple of weeks before the heavily populated eastern U.S. experiences what feels like normal winter weather, while the west will continue to see warmer than normal conditions. "Seasonable cold by early-mid December standards should be the rule in the eastern third of the country while warmer-than-normal conditions are expected to prevail to the west," the WSI forecast said.

Prices remain under pressure from near-record-high stockpiles ahead of the winter. Inventories are 4.5% above the five-year average, despite declines that have come earlier than they did last year.

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $3.75/mmBtu, according to IntercontinentalExchange, compared with Monday's average of $3.765/mmBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $5.35/mmBtu, compared with $4.91/mmBtu.

Write to David Bird at [email protected]