Dow Jones - Natural Gas Retreats Despite Larger Than Expected Draw From Stockpiles

DJ Natural Gas Retreats Despite Larger-Than-Expected Draw from Stockpiles
  By Timothy Puko

  Natural gas prices deflated after a quick spike as warm weather appears to be more important to traders Thursday than
a stockpile draw that far outdid expectations.

  Temperatures across the East and in most of the country's biggest markets for natural-gas heat will be more than 15
degrees above normal through Monday, said MDA Weather Services in Maryland. Winter heating demand is usually the
biggest driver for gas consumption and prices, but December is likely to be one of the warmest five on record, MDA
said.

  That prediction comes on top of a fall that has already been warm. Stockpiles kept building up in November, a time
when colder weather usually causes them to decline. Despite a larger-than-expected draw last week, they are still at
near-record highs, 15% above levels from a year ago and 6.5% above the five-year average for the same week, the U.S.
Energy Information Administration said Thursday.

  "The idea that we have tons of gas in storage and more mild weather in the foreseeable future, (gas prices) can't
overcome...those two overwhelming facts," said Kent Bayazitoglu, analyst at the energy-consulting firm Gelber &
Associates in Houston.

  Futures for January delivery recently traded down 3.3 cents, or 1.6%, at $2.029 a million British thermal units on
the New York Mercantile Exchange. At their trough, prices have fallen to within 0.2 cent of the three-year set in
October. But prices had also shot up to gains of more than 1% after the EIA's data release.

  It showed stockpiles fell by 76 billion cubic feet of natural gas to storage in the week ended Dec. 4. That is 13 bcf
more than the average forecast from analysts and traders surveyed by The Wall Street Journal and beyond what any of
those forecasters predicted.

  The EIA update is widely considered one of the best measures of supply and demand for the natural gas market. The
larger-than-expected drawdown from stockpiles would suggest larger demand or smaller supply than expected.

  Analysts and traders may have miscalculated how much demand for gas heat there was last week, said Dominick
Chirichella, analyst at the Energy Management Institute. His prediction for a 75-bcf draw was the closest to the EIA's
report.

  "The market just underestimated how cold it was last week," he said. "It was pretty cold."

  MDA, however, said heating-degree days in the gas market, a metric that tallies heating-related demand, were about
8.4% below the 30-year average during the period from Nov. 27 to Dec. 3. Expectations were more likely off from people
conserving less and power plants burning more because of low prices, and adjustments in demand and data collection from
the EIA that are common around holidays, Mr. Bayazitoglu said. This reporting week started just after Thanksgiving.

  Those issues are likely enough for traders to overlook the miss and continue selling gas because of the high
stockpiles and warm weather forecasts, analysts said.

  "You need winter," said Donald Morton, senior vice president at Herbert J. Sims & Co. "The natural gas spike of
supply is way outpacing demand."

  Physical gas for next-day delivery at the Henry Hub in Louisiana last traded at $1.885/mmBtu, compared with
Wednesday's range of $1.98-$2.005. Cash prices at the Transco Z6 hub in New York last traded at $1.32/mmBtu, compared
with Wednesday's range of $1.65 to $1.86.

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

  (END) Dow Jones Newswires

  December 10, 2015 12:01 ET (17:01 GMT)

  Copyright (c) 2015 Dow Jones & Company, Inc.

121015 17:01 -- GMT
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