DJ Natural Gas Prices Plunge on Low Spring Demand
By Timothy Puko
Natural gas prices plunged to their lowest point in nearly three years as weather updates suggest this spring
could bring some of the weakest demand in more than a decade.
Prices for the front-month May contract declined 4.1 cents, or 1.6%, to $2.49 a million British thermal units on
the New York Mercantile Exchange. Trading on the June contract surpassed May. May options expired at close and futures
expire Tuesday. The June contract declined 5.4 cents, or 2.1%, to $2.514/mmBtu.
May's settlement is lowest since June 15, 2012. Prices were down more than five cents as soon as electronic
trading began Sunday evening, but did pare some of those losses in the afternoon.
A Sunday-evening plunge is often a sign that weather updates are the dominant factor in trading. Traders,
especially those using automated computer systems, will often have immediate, strong reactions to weather updates when
they come after two days off and can't be priced in gradually as they usually are during the rest of the week.
Most gas consumption goes to heat homes or run power plants, which have their highest demand when air conditioners
are running in hot weather. That makes weather the biggest variable for gas prices, which often plunge as comfortable
spring weather kills demand.
This May could be even worse for demand than usual. Models used by Commodity Weather Group LLC in Bethesda, Md.,
show that the month may see the lowest levels of demand for this century, the company's president and meteorologist,
Matt Rogers, said.
The newest weather forecasts show above-average temperatures in the north, probably eliminating any chance of
heating demand lingering into May. They are also showing below-normal temperatures in the south, capping the likelihood
that people in the south will get an early start running air-conditioners.
"It's the opposite of what you'd want to see in early May to create demand," said Mr. Rogers. "We've got a little
bit of demand this week, and after that it really falls off."
Many traders likely rushed to get in bets against May prices before options expired, said Teri Viswanath, a
natural-gas strategist at BNP Paribas SA in New York.
They are also probably still reacting to the weekly surplus announced Thursday, she said. It tied for the
second-largest on record in April, though it came mostly in the first half of the month, a time when stronger demand is
still lingering. It shows how much near-record production is overwhelming the market, analysts have said.
"It strongly suggests there are going to be problems ahead" and that prices could fall even more, Ms. Viswanath
said.
Write to Timothy Puko at tim.puko@wsj.com
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(END) Dow Jones Newswires
April 27, 2015 14:54 ET (18:54 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
042715 18:54 -- GMT
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