By Timothy Puko
Natural gas futures are continuing to sell off Thursday after a
smaller-than-expected drain on storage levels added to pessimism
about an oversupplied market.
Storage levels shrank by 216 billion cubic feet in the week
ended Jan. 16, the U.S. Energy Information Administration said. The
drain was 11 bcf smaller than the 227-bcf consensus average of 19
forecasters surveyed by The Wall Street Journal.
The smaller-than-expected drain caused prices to drop another 8
cents, or 2.7%, on top of losses from earlier in the morning. The
front-month February contract recently traded down 19.6 cents, or
6.6%, at $2.778/mmBtu on the New York Mercantile Exchange.
The news damped hope that winter cold could rebalance an
oversupplied market. Half of U.S. homes use natural gas for heat
and that usually leads to price peaks in the winter. This year,
supply has been so overwhelming that even near-record demand hasn't
been able to keep up.
"There is little hope from current sellers that natural gas will
be at a premium in late February," said Aaron Calder, senior market
analyst at energy-consulting firm Gelber & Associates in
Houston.
Macquarie Group Ltd. had said Tuesday that the country could
have 4.7 trillion cubic feet of gas available for storage by
October, 600 billion cubic feet more than the country's storage
system has the capacity to hold. Analysts said Thursday that the
lower-than-expected storage drain is a sign that producers hadn't
slowed down as much as some traders had hoped.
"You're seeing a market that is well-stocked," said John Woods,
president of JJ Woods Associates and a Nymex trader.
The losses put natural gas at a crossroads. Such low prices
could be within a few cents of competing against the country's
cheapest coal, which means power plants could step in and buy more
gas, lifting the market, analysts at CIBC World Markets said in a
note. But if there is no string of consistent cold, even that may
not be enough new demand to soak up a growing glut and prices could
drop below $2.50/MMBtu heading into the summer, the bank adds.
"You still have guys who are trying to sell anything they
can...anything eight months out," said Michael Doyle, a broker at
Eclipse International Inc. in New York.
The drain brought storage levels to 2.6 trillion cubic feet,
8.2% more than a year ago and 5.5% below the five-year average.
Write to Timothy Puko at tim.puko@wsj.com
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