Dow Jones - Morning Natural Gas Commentary

DJ Natural Gas Slides In Cool Weather -- Commodities Report

   (FROM THE WALL STREET JOURNAL 8/18/14)
   By Christian Berthelsen

  Gas prices were buoyed in early June by low supplies and the prospect for a
hot summer, which would boost demand for the fuel. But temperatures have been
tepid, with weather forecasts through the end of August turning cool.

  Prices have lost 20% since mid-June, ending Friday at $3.776 a million
British thermal units on the New York Mercantile Exchange, a nearly three-week
low.

  If the end-of-summer outlook holds true, it will serve as a fitting coda to a
mild season that has kept demand in check and allowed producers and utilities
to rebuild inventories badly depleted last winter. Utilities burn natural gas
to generate electricity, and a hot summer can boost demand for gas to run air
conditioning in homes and businesses. In the winter, natural gas is used to
warm more than half of the homes in the U.S.

  Traders in the market have been focused on whether the weather would allow
the U.S. to reach adequate supply levels by early November, but fears of a
shortage have dissipated amid low demand and robust production. Indeed, hedge
funds and other financial investors have cut bullish bets on natural-gas prices
to a nearly nine-month low, after those bets hit a record high in February,
regulatory data show.

  "We think you're going to have plenty of gas for the winter unless you've got
some kind of extreme weather event, which, how likely is that?" said Brian
Bradshaw, a portfolio manager who oversees energy-derivatives trading at $1
billion fund firm BP Capital in Dallas. "You have to say it's a low
probability." The firm doesn't have positions in near-dated futures, but put on
a bullish position in the January contract when it dropped to $4.

  Data from the U.S. Energy Information Administration last week showed
additions to the nation's gas stockpiles were 70% above average for this time
of year.

  While inventories remain about 19% below average for this time of year, there
is still more than two months to go before the start of heating season. Without
heat to drive demand for electricity to cool homes, the U.S. is likely to
continue increasing stockpiles and either hit or approach an inventory target
of about 3.5 trillion cubic feet.

  BNP Paribas strategist Teri Viswanath said the market could continue to
weaken, with near-term prices going as low as $3.50 for the remainder of the
summer. "There appears to be very little fundamental support for gas prices,"
she said in a note.

  Kyle Cooper, managing director of research for $20 million gas firm Cypress
Energy in Houston, said the mild summer compounded an already negative outlook
for natural gas as production swells from the U.S.'s shale fields. The firm
profited from bearish bets in the summer months, but gains were wiped out by
losses on bullish bets for longer-dated contracts, he said.

  "What had been a well-known bearish factor from the supply side of the market
was aided by Mother Nature not delivering heat," Mr. Cooper said.


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  (END) Dow Jones Newswires

  August 17, 2014 19:46 ET (23:46 GMT)

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081714 23:46 -- GMT