Natural gas futures - Weekly outlook: February 6 - 10

Forexpros - Natural gas prices resumed their downward trend on Friday, as ongoing concerns over elevated U.S. inventory levels and mild winter weather continued to dampen sentiment on the heating fuel.

On the New York Mercantile Exchange, natural gas futures for delivery in March settled at USD2.507 per million British thermal units by close of trade on Friday, plummeting 11.5% over the week.

Natural gas prices came under pressure on Friday, retreating 1.8% after the U.S. National Weather Service’s most recent six-to-ten-day weather outlook called for average temperatures across the eastern and central part of the U.S., with above-average temperatures expected in the U.S. Northwest.

The U.S. National Oceanic and Atmospheric Administration offered a similar outlook, saying above-normal temperatures were expected across much of the U.S. in February.

This is typically the coldest time in winter, but temperatures in the U.S. have yet to reach levels cold enough to boost demand for the heating fuel, keeping prices depressed at unseasonably low levels.

The bearish outlook prompted Societe Generale to cut its 2012 average natural gas price forecast to USD2.40 per million British thermal units, down from a previous estimate of USD2.90.

Also Friday, Citigroup said that it “continues to see below-average U.S. storage withdrawals and time running out on the larger heating season, leaving the market at risk for further price weakness.”

Earlier in the week, Morgan Stanley slashed its 2012 forecast for natural gas prices by nearly 30%, citing weaker-than-expected heating demand. The bank expected prices to average USD2.70 per million British thermal units, compared to a previous forecast of USD3.85.

Natural gas prices soared nearly 7.1% on Thursday after a report from the U.S. Energy Information Administration showed that natural gas storage in the U.S. fell by a greater-than-expected 132 billion cubic feet in the preceding week, amid a brief cold-snap.

Inventories fell by 171 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a decline of 202 billion cubic feet, according to U.S. Energy Department data.

Total U.S. natural gas storage stood at 2.966 trillion cubic feet as of last week, 25% above both year-ago levels and the five-year average for this time of year. In the prior week, the surplus was 21% above historical levels.

Natural gas prices tumbled approximately 17.5% in the three sessions leading up to Thursday. On Tuesday, prices posted the biggest January loss in three years, dropping 7.8% as forecasts for increased production signaled no end to a glut of the heating fuel.

The U.S. EIA said that gas output from the lower 48 U.S. states rose by 1.3% in November to a record 72.61 billion cubic feet from 71.69 billion in October. Total U.S. output gained 2.7% to 82.7 billion cubic feet a day as production in Alaska rose 14%.

In a research note, Barclays Capital called the new figures "stunning."

Gas prices fell to USD2.319 per million British thermal units on January 20, the lowest since February 2002, before rebounding after a production-cut announcement by Chesapeake Energy sparked a massive short-covering rally.

However, optimism faded amid the lack of production cut announcements from other major U.S. natural gas producers. Exxon Mobil, the largest U.S. natural gas producer, said earlier in the week that it had no intention of curbing gas production.

Elsewhere on the NYMEX, light sweet crude oil futures for March delivery traded at USD97.83 a barrel by close of trade on Friday, retreating 1.68% on the week, while heating oil for March delivery gained 1.28% over the week to settle at USD3.113 per gallon by close of trade Friday.