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US Gas Futures Swoon After Inventories Rise More Than Expected

June 10th, 2011

NEW YORK (Dow Jones) – Natural-gas futures plunged Thursday after the government reported a bigger-than-expected weekly increase in U.S. inventories.

Natural gas for July delivery recently settled down 17.3 cents to $4.674 per million British thermal units on the New York Mercantile Exchange.

The U.S. Department of Energy said U.S. gas stockpiles rose by 80 billion cubic feet last week, higher than the 77-bcf build expected from analysts surveyed by Dow Jones Newswires.

The figure was a “sucker punch” to the market, said Matt Smith, an analyst at Summit Energy in Louisville, Ky.

“We really saw the market sell off strongly,” Smith said.

The report, though only slightly above expectations, prompted a rush of selling among traders looking to exit following three consecutive sessions of higher end-of-day prices. Before the mid-morning report, the July contract
traded as high as $4.983, the highest intraday price since Aug. 2.

Before Thursday’s rout, the benchmark contract had traded up more than 18% since May 20. July futures looked poised to break the $5 threshold prior to the report’s release, swept higher by a round of hotter-than-normal temperatures in the Northeast and the start of hurricane season.

Traders, however, had been expecting Thursday’s report to offer stronger indications that the recent bout of warm weather had led to a smaller increase in stockpiles. When they didn’t get it, traders saw an opening to sell.

“Not enough to express major fundamental changes, but just enough to blow off some of the anxiety in the market,” said Pax Saunders, an analyst at the trading advisory firm Gelber & Associates, of the inventory report.

Hot temperatures typically spur additional natural-gas demand from power plants, which see higher utilization as more homes and offices run air conditioners.

The unexpected reading may have been prompted by a bigger-than-expected drop in demand over the Memorial Day weekend or higher nuclear plant operating rates, said Tim Evans, energy analyst at Citi Futures Perspective.

There is little sign the unseasonably warm weather will dissipate soon. Forecaster Energycast Trader said it sees above-normal temperatures across the southern U.S. over the next six to 10 days. For its 11-to-15-day forecast, the
private forecaster said higher-than-usual temperatures will continue in the south, as well as the central U.S.

Last week’s inventory build, though bigger than expected, was still well below last year’s 98-bcf injection and the five-year average build of 96 bcf.

Inventories as of June 3 stood at 2.187 trillion cubic feet, 2.6% below the five-year average, and 10.4% below 2010 levels, the DOE’s Energy Information Administration said.

FUTURES                     SETTLEMENT                     NET CHANGE
Nymex July                       $4.674                                   -17.3c
Nymex August                  $4.704                                   -17c
Nymex September            $4.726                                   -16.7c

CASH HUB                     RANGE                     PREVIOUS DAY
Henry Hub                     $4.85-$4.98                    $4.81-$4.91
Transco 65                    $4.91-$4.95                     $4.8275-$4.86
Tex East M3                  $5.23-$5.32                     $5.55-$5.7725
Transco Z6                    $5.34-$5.81                      $6.50-$9.00
SoCal                             $4.75-$4.86                     $4.67-$4.76
El Paso Perm                 $4.67-$4.80                     $4.59-$4.63
El Paso SJ                     $4.57-$4.63                     $4.52-$4.55
Waha                             $4.75-$4.85                     $4.66-$4.70
Katy                               $4.79-$4.94                     $4.74-$4.81

_____

By Dan Strumpf and Amy D’Onofrio

Glossary Terms

Glossary Terms

Nominated Volume

The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.

Marketing Affiliate

A marketing company that has corporate ties to an interstate pipeline, an intrastate pipeline, or a local distribution company.

Energy Only Providers

Power marketers or other electricity vendors who provide and bill for only the energy component of the electricity consumed by the end-use customer.

Therm

A unit of heating value equivalent to 100,000 British thermal units (Btu).

Real Power

The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.

Injection (Storage)

The process of delivering natural gas into a storage field for future delivery and use.

Price Ceiling

Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.

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