Dow Jones - End of Day Natural Gas Commentary

DJ Natural-Gas Prices Break $4 on Smaller-Than-Expected Surplus


   By Timothy Puko


  NEW YORK--Natural-gas front-month prices closed above $4 a million British thermal units for the first time in six
weeks, boosted by summer heat and a smaller-than-expected surplus.

  The front-month October contract settled up 4.1 cents, or 1%, to $4.044/mmBtu on the New York Mercantile Exchange.
October had closed above $4/mmBtu Wednesday, too, when the cheaper September contract was still trading. It expired
Wednesday at $3.957. The front-month price is now up 7%, rising steadily since its low close of the month on Aug. 15.

  Late-arriving heat created the momentum since then. Summer heat makes it more likely people will use their air
conditioners, consuming more gas-fired electricity, and mild weather had been suppressing demand earlier in the summer.

  Now, moderately above-normal temperatures are likely to spread across the Midwest, East and South through the first
week of September, according to Commodity Weather Group LLC in Bethesda, Md. It predicted higher temperatures in the
Thursday update to its 6-10 day forecast.

  Gas prices also got a boost from the federal government's weekly storage update. Producers added 75 billion cubic
feet of gas to storage for the week ended Aug. 22, the U.S. Energy Information Administration said. The addition was 2
bcf smaller than the 77 bcf consensus average expectations of analysts and brokers in The Wall Street Journal survey.

  "Everybody has been waiting to buy into it and they needed something beyond the fundamental aspect to get that
going," said Todd Garner, managing partner at hedge fund Protec Energy Partners LLC based in Boca Raton, Fla., which
has $100 million spread between natural gas, oil and refined petroleum products. "Next week, if we can hold that $4,
then we really have momentum going. Then people can jump on the bandwagon."

  But analysts warned Thursday that there are long-term trends fighting against that momentum. A surplus of 75 bcf
suggests the market was oversupplied by 17 bcf last week, said Aaron Calder, senior market analyst at energy-consulting
firm Gelber & Associates in Houston. That put price pressure on later-month contracts in the early afternoon, Mr.
Calder said.

  "Week-to-week summer weather changes should not distract from the much, much bigger question of who consumes all the
incremental gas production this year and next," analysts at the energy investment bank Tudor, Pickering, Holt & Co.
said in a note. "Our gas supply forecast keeps moving up with no corresponding demand change."

FUTURES SETTLEMENT         NET        CHANGE
   Nymex October         $4.044        4.1c
   Nymex November        $4.101        3.2c
   Nymex December        $4.186        2.6c


CASH HUB                  RANGE            PREVIOUS DAY
   El Paso Perm        $3.84-$3.90         $3.90-$3.96
   El Paso SJ          $3.92-$3.95         $3.95-$3.98
   Henry Hub           $3.99-$4.0375       $3.965-$4.00
   Katy                $3.97-$4.01         $3.99-$4.02
   SoCal               $4.12-$4.28         $4.12-$4.34
   Tex East M3         $1.80-$2.20         $2.50-$2.66
   Transco 65          $3.97-$4.015        $3.96-$3.99
   Transco Z6          $1.85-$2.07         $2.72-$2.83
   Waha                $3.90-$3.955        $3.94-$3.95


  Write to Timothy Puko at tim.puko@wsj.com


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  (END) Dow Jones Newswires

  August 28, 2014 15:39 ET (19:39 GMT)

  Copyright (c) 2014 Dow Jones & Company, Inc.

082814 19:39 -- GMT
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