UPDATE 3-U.S. natural gas futures fall; cash rockets to record

Wed Feb 5, 2014 4:50pm EST

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(Adds closing prices)
    By Jeanine Prezioso and Julia Edwards
    NEW YORK, Feb 5 (Reuters) - U.S. natural gas futures fell
sharply Wednesday due to longer term mild weather forecasts,
while next-day prices spiked to record highs on anticipation for
immediate cold. 
    Temperatures are expected to be as much as 15 degrees
Fahrenheit below normal across the center of the country for the
next five days, promising to deplete already strained supplies,
and disconnecting cash prices from futures prices.
    Gas futures rose 5 percent earlier in the session to a fresh
4-year high, extending a 10-percent surge the previous day, but
fell later due to profit taking and the milder forecasts. 
    MDA Weather Services forecast intense cold weather in the
U.S. West to Central region over the next five days with the
strong cold fading over the next 6 to 10 days and warmer than
average temperatures in the 11 to 15-day range.
    Front-month natural gas futures on the New York Mercantile
Exchange  closed down 34.5 cents, more than 6 percent, at
$5.03 per million British thermal units.
    "The futures market appears to be disconnected from key
developments occurring in the physical market," said Teri
Viswanath, an analyst at BNP Paribas. "Today we witnessed a
marked increase in spot prices for every consuming region,
suggesting that utilities might be rationing limited inventories
by purchasing gas off the market."
    Natural gas futures trade has been extremely volatile in the
past month as demand for gas to heat homes amid record-cold
winter temperatures drew down supplies. 
    U.S. natural gas inventories likely fell 270 billion cubic
feet last week, more than the same week last year and the
five-year average, as cold weather continued, according to a
Reuters poll of industry traders and analysts. 
    Natural gas stocks are currently 22.5 percent below last
year's levels and 16.6 percent below the five-year average,
according to government data.
    Still, some market watchers say there is plenty of supply in
the ground as natural gas production in November rose to a
record high. 
    "To keep it up here the weather has got to continue to be
relentless and still it's a little high based on supplies," said
Jeff Grossman, president of BRG Brokerage in New York.
    
    CASH PRICE RECORD 
    While March futures prices slid on Wednesday, prices for
Thursday delivery across the country spiked, some to record
highs, due to the cold.
    In the cash market, trades for Thursday delivery at Henry
Hub GT-HH-IDX, the benchmark supply point in Louisiana,
averaged $7.91 per mmBtu, according to the Intercontinental
Exchange (ICE), the highest average price in 5-1/2 years. Henry
Hub gas traded as high as $8.40 earlier in the day.
    In the West and Midwest, prices rose by unprecedented
amounts as threats of production freeze-offs were also expected
to strain supply. Gas on the Opal pipeline W-OPT-IDX in
Wyoming reached an all-time high of $29.50, up by $21.44. Its
previous record high was around $13, according to Reuters data. 
    Prices on New York's Transco Zone 6 pipeline E-TSCO6NY-IDX
rose $12.74 to $21.87, while Chicago prices MC-CHICIT-IDX rose
$18.12 to $26.73, ICE data showed.
    Nuclear plant outages, which create a draw on natural gas as
a substitute power source, were at about 4,700 megawatts, down
from 5,100 MW on Tuesday. That compares with 10,000 MW out a
year ago and a five-year average outage rate of 5,800
MW. 

 (Additional reporting by Scott DiSavino; editing by Sofina
Mirza-Reid and Phil Berlowitz)
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