DJ Natural Gas Prices Ignore Cold Spell, Close at Two-Year Low
By Timothy Puko
Natural gas prices closed at a new two-year low on Wednesday, shrugging off a cold front covering most of the nation
to erase early-morning gains and spend the afternoon in decline.
Natural gas for February delivery settled down 6.7 cents, or 2.3%, at $2.871 a million British thermal units on the
New York Mercantile Exchange. Prices briefly peaked above $3/mmBtu, but fell back into the pattern of volatility that
has led to wild swings since November.
Prices are now down more than 36% since Nov. 20, a time when demand for home heating often sends prices to their
yearly peaks. But record production and tepid heating demand during a mild December have allowed stockpiles to become
so healthy that even an Arctic cold front can't spur traders to bid up prices, analysts said.
"If it wasn't for this cold, we basically would have been able to drive (lower)," said Gene McGillian, an analyst at
Tradition Energy. "It just reflects the massive amounts of gas we're producing right now."
Production set a new record by averaging at 72.8 billion cubic feet a day in December, according to Platts oil and
gas analytics unit Bentek Energy. That is up 11.6% compared to daily average production levels in December 2013, it
said.
Storage levels likely fell by 119 billion cubic feet of gas last week, according to the average forecast of 20
analysts and traders surveyed by The Wall Street Journal. That is nearly 20% less than both last year's drain and the
five-year average, according to data from the U.S. Energy Information Administration.
It is scheduled to release its storage update for the week that ended Friday tomorrow at 10:30 a.m. EST.
Prices aren't likely to get back to $4/mmBtu this winter, Dominick Chirichella, analyst at the Energy Management
Institute, said in a note. BNP Paribas SA strategist Teri Viswanath said a ceiling is developing at $3.25/mmBtu.
It may not get much colder this winter than it is right now, they said, pointing to above-normal temperatures
forecast for later this month. December had already been unseasonably warm, keeping demand low and allowing producers
to ramp up production enough to cover any strong bursts of heating demand, Mr. Chirichella said.
Spot trading at the premium-priced New York hub, Transco Z6, has gone as high as $20/mmBtu this week, but even that
is a sign of how well supplied the market is, Ms. Viswanath said in a note. Prices on the same day last year rose to as
much as $90/mmBtu, she noted. Weather was colder, heating demand was higher and supplies were all shorter a year ago.
Money managers have already moved to their shortest position, with the most net bets on falling gas prices, in more
than a year. That means rallies like the one that started morning trading could unwind quickly as those investors keep
looking to sell, said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates. It creates a high
risk for big losses on any data that emphasizes how oversupplied the market is, he added.
"We are viewing this as a sell-rallies market," he advised clients.
Write to Timothy Puko at tim.puko@wsj.com
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(END) Dow Jones Newswires
January 07, 2015 15:11 ET (20:11 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
010715 20:11 -- GMT
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