April 12, 2012 / 1:47 PM / in 6 years

Natgas hovers near 10-year low

A worker checks the valve gears in a natural gas control centre of Turkey's Petroleum and Pipeline Corporation, 35 km (22 miles) west of Ankara, February 14, 2012. REUTERS/Umit Bektas

NEW YORK (Reuters) - Natural gas futures were mired near a 10-year spot chart low under $2 per million British thermal units early Thursday, pressured by mild spring weather and record-high supplies.

U.S. government storage data due out later Thursday should show another build to send inventories further into record territory and tighten the bearish grip on the market.

Front-month May natural gas futures on the New York Mercantile Exchange were at $1.986 per mmBtu, up 0.2 cent, after sliding Wednesday to $1.972 to mark the lowest price for a front month since January 2002.

The front month lost 19 percent in March, its biggest monthly drop since August 2010, and dropped another 6 percent so far in April.

Most traders expected few gains in the near term, with no extreme cold or hot weather on the horizon to boost demand.

RECORD INVENTORIES

U.S. Energy Information Administration data last week showed total gas inventories rose to 2.479 trillion cubic feet, driving stocks further into record territory for this time of year.

(Storage graphic: link.reuters.com/mup44s)

Most traders and analysts expected weekly data from the EIA would show a build of about 25 bcf during today’s release at 10:30 a.m. EDT (1430 GMT), a Reuters poll showed. Stocks rose an adjusted 7 bcf in the same week last year, and the five-year average increase for that week is 22 bcf.

PRODUCTION ALSO STILL AT RECORD HIGHS

The EIA’s short-term energy outlook early this week offered little hope for bulls, with the agency sharply raising its estimate for marketed gas production this year for a third straight month.

EIA said it expects 2012 gas output to climb by 3 bcf per day, or 4.5 percent, to a record 69.22 bcfd, up from its March outlook that had output this year at 67.91 bcf daily.

EIA also forecast a significant 2.8 bcf per day, or 4.3 percent, gain in consumption this year, primarily due to more utility switching from pricier coal to cheaper gas, but it was not expected to be enough to tighten an oversupplied gas market.

Production growth is expected to slow this year as low prices hit plans for new drilling, but the sharp decline in the Baker Hughes gas rig count -- down about 31 percent since peaking at 936 in October -- has not yet reduced output partly due to increased drilling efficiency.

The gas-directed rig count has fallen in 12 of the last 13 weeks, sinking last week to its lowest in nearly 10 years, but rising output from shale has kept production on an upward track.

(Rig graphic: r.reuters.com/dyb62s)

MORE FUNDAMENTALS

The National Weather Service’s six- to 10-day outlook issued on Wednesday again called for above-normal readings for about the eastern third and western third of the nation and some below-normal readings across the mid-Continent.

Traders said the outages should add more than 1 bcf to daily gas demand.

Reporting by Eileen Houlihan; Editing by John Picinich

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