DJ Natural Gas Drops on Warm December Weather
By Timothy Puko
Natural gas closed at its lowest price in a month, pressured by forecasts for warm December weather.
The front-month January contract settled down 13.3 cents, or 3.3%, at $3.874 a million British thermal units on the
New York Mercantile Exchange. Futures have lost nearly 14% since they hit their five-month high closing price less than
two weeks ago.
An unseasonably warm start to December is chasing buyers away, analysts said. Half of all U.S. homes use gas for
heating, making weather the big driver in the natural-gas market. If the winter isn't cold to drive heating demand,
record U.S. gas production could cause prices to collapse.
Current forecasts are reminiscent of 2011 and 2012 when prices fell to nearly $3/mmBtu at the start of the winter,
what is usually the season for peak demand, Aaron Calder, senior market analyst at energy-consulting firm Gelber &
Associates in Houston, said in a note. If the warm weather does come as forecast, demand could be low enough for
producers to eliminate a storage deficit that has lingered since high demand last winter, he added.
The storage deficit has frequently encouraged traders to bid up the price of gas on fears that a cold winter and
demand spikes could create a shortage of gas.
Mr. Calder warned that weather forecasts might turn out to be too warm, which would mean prices have dropped too far.
But many traders are likely ignoring that and trading as though the mid-December forecasts foreshadow an entire
winter of low demand, said Kyle Cooper, managing director of research at IAF Advisors, a Houston consulting firm.
"If you have this weather continue through the end of December and January, then $3.90 is way too high," Mr. Cooper
said. "You don't have a whole lot of liquidity either, so it's probably not taking much to drive it lower."
--Write to Timothy Puko at tim.puko@wsj.com
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(END) Dow Jones Newswires
December 02, 2014 15:05 ET (20:05 GMT)
Copyright (c) 2014 Dow Jones & Company, Inc.
120214 20:05 -- GMT
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