Natural Gas Hits 2012 High, and Some See Further Gains
By DAVID BIRD
Wall Street Journal
October 11, 2012, 3:37 p.m. ET
NEW YORK—Natural-gas futures rose 3.7% Thursday to a 2012 high after U.S. data showed gas-storage levels rose by less than expected last week.
The Energy Information Administration said inventories rose by 72 billion cubic feet, below analysts' forecasts for a 79-bcf rise and below normal for the week. Last year, stocks rose by 108 bcf, while the five-year average increase was 84 bcf.
Even with the smaller increase, stocks are at a record high for this time of year at 3.725 trillion cubic feet.
But the market is focused on the continued shrinkage of the hefty year-on-year supply overhang. Stockpiles are now 6.8% above a year earlier. That is a huge drop from the end of March, when, after one of the warmest winters on record, the year-on-year overhang was nearly 57%.
Ahead of the start of winter, the EIA said in a forecast Wednesday, natural-gas supplies expected to set an end-October record of 3.903 tcf. That would put the overhang at just 2.6%. At year-end, inventories are expected to be 4.3% below a year ago.
Market bulls, who have sent prices higher in 11 of 13 sessions, are counting on winter temperatures returning to normal and further boosting gas demand and prices. Since Sept. 24, in the final days of the October contract, front-month natural-gas futures on the New York Mercantile Exchange have gained 76.7 cents, or 27%. In the 11 days that November has been the front month, prices are up 30.7 cents, or 9.3%.
In Thursday trading, November gas settled 12.9 cents higher, at $3.604 per million British thermal units, after hitting an intraday high of $3.628/mmBtu.The gain was the biggest one-day rise since Oct. 1.
Some analysts said the current rally may be only just the start.
"As the year-on-year inventory surplus moves into a deficit, the stage is set for stronger gas prices," analysts at Morgan Stanley MS +2.64%said in a research note. They expect gas to average $4.20/mmBtu between November and March and said gas futures could climb to $5/mmBtu, a level not seen since June 2010. The forecast is based on temperatures returning to 30-year norms this winter after the record warmth of last winter.
Weather is the biggest risk to the outlook, the analysts said. If winter is 5% warmer than the 30-year average, that would knock prices down by 40 cents/mmBtu.
Kyle Cooper, analyst at IAF Energy Advisors, said he sees a "very low probability" of gas climbing to near $5/mmBtu, saying it would difficult without an extended cold snap this winter.
"The momentum is up," he said. "But it all comes down to Mother Nature."
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