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Natural-Gas Futures End at Five-Week Low on High Inventories

February 18th, 2013

NEW YORK (Dow Jones) – An early bargain-hunting rally lost steam Friday, sending natural-gas futures prices to a fresh five-week low on worries over high inventory levels.

Market bulls snapped up March futures contracts after a 14.3-cent fall Thursday, which had been driven by government data showing stocks fell by less than expected last week due to lower demand.

But the attempted rally failed to lift prices above the critical level of $3.20 per million British thermal units, which was the 200-day moving average. Traders now see a test of $3.10/mmBtu in the cards, barring any significant shifts toward much colder near-term temperatures.

March-delivery gas settled one cent lower, at $3.153/mmBtu. That is the weakest level since Jan. 9. Prices are 11.6%, or 41.3 cents, below the 2013 peak hit Jan. 18, and have been sliding as demand for gas for home heating hasn’t been enough to cause significant falls in inventories at a time of record gas output.

Traders said some players were staying on the sidelines Friday ahead of the Presidents Day holiday Monday. While electronic trading will take place, Nymex won’t publish settlement prices until after Tuesday’s trading ends.

Near-term forecasts are tilting toward normal to warmer-than-normal temperatures late in February, which could further limit the need for gas to be drawn from storage to meet demand for home heating.

Natural gas in U.S. storage fell by 157 billion cubic feet in the week ended Feb. 8, according to data released Thursday by the U.S. Energy Information Administration. Analysts’ average estimate was calling for a 161-bcf drop.

Market analysts and traders have been surprised by modest inventory declines for three straight weeks, sparking fears natural-gas demand isn’t keeping pace with record levels of supplies.

Total U.S. natural-gas inventories stand at 2.527 trillion cubic feet. While that is below last year’s record for this time of year, it is 16% above the five-year average for the week. With the end of the peak winter demand season fast approaching, traders are worried gas-storage levels may be higher than expected at the end of March, when companies normally begin injecting gas into storage levels.

“While we look for major support at the $3.10 level to be tested early next week, this is shaping up to be a market capable of additional declines to the $3 mark on the heels of three consecutive storage reports that indicated significantly smaller supply withdrawals than had generally been anticipated,” said Jim Ritterbusch, president of Ritterbusch & Associates, an energy advisory firm.

FUTURES                SETTLEMENT                 NET CHANGE
Nymex March             $3.153                               -1.0c
Nymex April               $3.218                               -1.3c
Nymex May               $3.288                               -1.5c

CASH HUB                RANGE                PREVIOUS DAY
Henry Hub             $3.155-$3.255          $3.255-$3.3125
Transco 65            $3.21-$3.24             $3.24-$3.31
Tex East M3          $3.70-$3.97            $3.49-$3.57
Transco Z6             $13.10-$21.00        $4.85-$5.50
SoCal                     $3.31-$3.52              $3.38-$3.61
El Paso Perm          $3.09-$3.14             $3.2175-$3.26
El Paso SJ               $3.09-$3.20             $3.245-$3.26
Waha                       $3.10-$3.14              $3.24-$3.245
Katy                         $3.16-$3.185            $3.25-$3.275

_____

By David Bird

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