Dow Jones - Morning Natural Gas Commentary

DJ Natural Gas Retreat Continues on Expectations for Big Surplus



  By Timothy Puko


  NEW YORK--Natural-gas prices broke below the $4 mark for the first time this week as expectations for a big surplus
drive selling for a second-straight session.

  Natural gas for November delivery is down 4.8 cents, or 1.2%, at $3.975 a million British thermal units on the New
York Mercantile Exchange. The move is now the fifth-consecutive time since August that gas has retreated after cresting
above $4/mmBtu.

  Record production from the unconventional drilling boom keeps capping the market. Traders are awaiting Thursday's
weekly gas storage update from the U.S. Energy Information Administration and expecting it to show an addition 26%
larger than the five-year average. Producers likely added around 107 billion cubic feet of gas to stockpiles last week,
according to the average forecast of 18 analysts and traders surveyed by The Wall Street Journal. The report comes out
at 10:30 a.m. ET.

  A four-day rally that ended Monday likely came from traders trying to find the "appropriate weather risk premium,"
fearful that extreme cold could lead to a rush of demand, energy investment bank Tudor, Pickering, Holt & Co. said in a
note. Last year's historically cold winter led to price spikes above $6/mmBtu. MDA Weather Services did forecast on
Tuesday a colder-than-normal winter, but one "well short" of last year's extremes.

  We'll "need that cold weather to deliver to keep prices above $4/mcf," Tudor said in its note.

  When prices dip like this, it could be an opportunity to buy, said Frank Clements, co-owner of Meridian Energy
Brokers Inc. outside New York. Some traders are likely to push the price back up with the fear of last winter still
fresh in their minds, he said.

  "It is early in the season for a winter rally, but I think traders don't want to get caught not being long ... and
not participating in a rally that gets to $6 or $7 again," Mr. Clements said. "That fear factor is starting to creep
back into natural gas."

  Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $3.9675/mmBtu, compared with
Wednesday's range of $4.10-$4.16. Cash prices at the Transco Z6 hub in New York last traded at $1.90/mmBtu, compared
with Wednesday's range of $2.22 to $2.28.


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


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  (END) Dow Jones Newswires

  October 02, 2014 09:39 ET (13:39 GMT)

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

100214 13:39 -- GMT
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