DJ Nymex Gas Settles 8% Lower On Bearish News From EIA
NEW YORK (Dow Jones)--Natural gas futures dropped by over 8% on the New York
Mercantile Exchange, bringing the decline for the last four sessions to 21% as
traders reacted to a bearish report from the Energy Information Administration.
The agency not only reported a draw that was below expectations but also
revised last week's surprise 49 Bcf draw by 32 Bcf, bringing it to just 17 Bcf.
This leaves total storage one month into the heating season at a higher level
than what has been seen at any point before 2004 at any time of year.
"The bottom line is we're still at 3,300 Bcf," said Guy Gleichmann, president
of futures broker United Strategic Investors Group.
With the temperature outlook mixed for the next couple of weeks, analysts see
storage levels at the end of this month at a level that may reassure end-users
fearful of the panicky price spikes seen in three of the last four winters. A
rule of thumb is that if inventories of working gas are on track to end the
winter above 1,000 Bcf then supplies are seen as being in good shape.
"We're not going below 1 Tcf and likely will end up above 1.2 Tcf," said Mike
Schick, president of consulting firm Energy Analytics.
January natural gas futures settled 60.2 cents or 8.1% lower at $6.811 per
million British thermal units. The back months saw sharp drops as well.
Crude oil futures started out the day with hefty losses, but these got much
worse after the publication of the natural gas data. Cumulative losses over two
days for January crude futures were an astounding $5.88 a barrel or 12%, one of
the most precipitous drops on record. Schick notes that this opens the door for
more declines in natural gas.
"We're in great shape for natural gas supply but our fundamentals were taking
a back seat to crude," said Schick.
Traders expect more weakness in the near-term.
"This thing was so over-inflated and it still looks that way," said
Gleichmann. "The path of least resistance is still lower."
Physical prices also dropped, though less severely. Deals on the benchmark
Henry Hub were seen as low as $6.31/MMBtu during the day versus a range of
$6.65-$7.00/MMBtu Wednesday. Prices also fell sharply on Northeastern hubs with
Transcontinental Zone 6 dropping as low as $7.20/MMBtu versus a range of
$7.36-$7.53 Wednesday.
The selloff on the phyical gas market may have been limited by some near-term
cold weather that has kept spot demand healthy. Moderating temperatures through
the upcoming weekend and traditional end of week softness may augur poorly for
prices in the upcoming session, especially if the afternoon losses in the
futures market fail to reverse.
-By Spencer Jakab, Dow Jones Newswires; 201-938-4377;
spencer.jakab@dowjones.com
(END) Dow Jones Newswires
12-02-04 1559ET
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