Futures End At 3-Month Low On Ample Supply View

NEW YORK (Dow Jones)--Natural gas futures Tuesday ended at their lowest levels since mid-November on anticipation of declining weekly draws from storage and a moderating gas-heating demand outlook.

Natural gas for March delivery settled 0.9 cent, or 0.2% lower, at $3.867 a million British thermal units on the New York Mercantile Exchange, the lowest ending price since Nov. 16.

Colder-than-normal temperatures are expected across much of the northern tier of the U.S. through the first week of March, with warmer-than-average weather expected in the Southeast, meteorologists with private forecaster Commodity Weather Group said Tuesday.

But the market is "looking past this little cold-weather spike in the Northeast," said Pax Saunders, an analyst with Houston-based Gelber & Associates. Thursday's weekly U.S. gas storage report should be "incredibly bearish," he said, as milder weather last week likely led power producers to rely less on inventories of the heating fuel.

Despite a more balanced supply-and-demand picture than when winter began, gas prices are still under pressure from depressed market sentiment, as many analysts see supply overwhelming demand once winter's peak consumption period subsides.

The Energy Information Administration in its latest outlook saw U.S. marketed gas production increasing by 0.8% in 2011 compared with year-earlier levels, while domestic consumption is expected to increase by 0.3%.

"Strong downward market momentum has built over the course of winter," Credit Suisse analyst Stefan Revielle said Tuesday in a note to clients. "The recent trend in prices might suggest that last week's relative lull in trading will lead to yet another round of selling."

Natural gas futures last week fell 0.9%, as mixed forecasts for the end of February gave the market little direction. Traders have kept a close eye on the weather outlook for hints at gas consumption trends as winter's peak cold period winds down.

Meanwhile, U.S. physical natural gas prices at some key Northeast delivery points surged Tuesday on colder weather and jitters about supply disruptions following a pipeline blast in Canada over the weekend.

A TransCanada Corp. (TRP, TRP.T) pipeline that connects with arteries serving U.S. markets suffered a rupture in a segment of line in Ontario late Saturday. The company Tuesday said that it had restricted supplemental volume increases on the Canadian Mainline, but was still able to meet its firm supply contracts.

Gas for next-day delivery at Transcontinental Zone 6 in New York traded as high as $17/MMBtu Tuesday, after trading near $5 during the previous session.

Wednesday's average temperatures should be below freezing in major markets from Washington D.C. through Boston, private forecaster MDA EarthSat said.

 
   FUTURES           SETTLEMENT         NET CHANGE 
   Nymex March         $3.867           -0.9c 
   Nymex April         $3.907           +0.1c 
   Nymex May           $3.976           unch 
 
   CASH HUB          RANGE              PREVIOUS DAY 
   Henry Hub           $3.85-$3.92      $3.79-$3.89 
   Transco 65          $3.85-$3.90      $3.78-$3.85 
   Tex East M3         $4.70-$5.28      $4.10-$4.40 
   Transco Z6          $7.75-$17.00     $4.95-$5.30 
   SoCal               $3.94-$3.98      $3.85-$3.87 
   El Paso Perm        $3.80-$3.88      $3.72-$3.77 
   El Paso SJ          $3.83-$3.87      $3.72-$3.76 
   Waha                $3.80-$3.85      $3.70-$3.80 
   Katy                $3.81-$3.88      $3.74-$3.80 
 
 

(Source: http://online.wsj.com/article/BT-CO-20110222-713740.html)