Natural gas futures plunge for 3rd day on supply glut, mild weather

Forexpros - Natural gas prices plunged for a third day on Wednesday, re-approaching last week’s ten-year low as ongoing concerns over elevated U.S. inventories, rising production levels and mild winter weather continued to weigh on the heating fuel.

On the New York Mercantile Exchange, natural gas futures for March delivery traded at USD2.395 per million British thermal units during U.S. morning trade, plummeting 4.3%.   

It earlier plunged by as much as 5.5% to trade at USD2.357 per million British thermal units, the lowest since January 23.

Natural gas prices have lost nearly 17% since Monday. On Tuesday, prices posted the biggest January loss in three years, dropping 7.8% as forecasts for milder weather and increased production signaled no end to a glut of the heating fuel.

The U.S. Energy Information Administration said Monday 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%.

According to official data released last week, U.S. gas inventories remain at their highest level ever for this time of year. Total U.S. natural gas storage stood at 3.098 trillion cubic feet as of last week, 20.7% above year-earlier supplies and 21.4% above the five-year average, the most since June 2009.  

Natural gas traders were looking forward to Thursday’s closely-watched U.S. Energy Information Administration’s report on U.S. natural gas stockpiles for the week ended January 27 to gauge the strength of demand in the U.S.

Wall Street investment bank Morgan Stanley on Tuesday cut its 2012 forecast for natural gas prices by nearly 30%, citing weaker-than-expected heating demand. The bank slashed its estimate to an average of USD2.70 per million British thermal units, down from a previous forecast of USD3.85.
 
U.S. heating demand was 450 billion cubic feet less than the bank had originally estimated, leaving so much supply that excess stored gas may be forced onto the market to keep the facilities operational, a so-called ratchet issue.

“Natural gas will likely be range bound between USD2.50 and USD3.00 per million for much of 2012, barring any surprises from weather or rig efficiency. Extremely mild weather can cause ratchet and congestion issues, sending prices to sub-USD2.00, but this would be short-lived,” the bank said in a report.

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.

Last week, gas prices fell as low as USD2.319 per million British thermal units, the lowest since February 2002, before rebounding after production-cut announcements by major U.S. natural gas producers sparked a massive short-covering rally.

However, optimism faded amid the lack of production cut announcements from other major U.S. natural gas producers.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in March dipped 0.15% to trade at USD98.33 a barrel, while heating oil for March delivery added 0.55% to trade at USD3.068 per gallon.