Eight-Session Rally in Natural Gas Futures Pauses Near $4/mmBtu

-- Brief warm spell spurs profit-taking

-- Prices hover near six-month high near $4/mmBtu

-- Sharp turn colder for Midwest, East in next six-10 days

   By David Bird 
 

NEW YORK--Natural-gas futures traded lower Tuesday as forecasts for a brief spell of warm temperatures provided a pause in an eight-day rally that lifted prices to six-month highs.

Analysts said that after a flurry of profit-taking, prices could march higher again as forecasts call for a dramatic turn colder in key gas-heating markets in the next six to 10 days.

Natural gas for January delivery on the New York Mercantile Exchange traded 0.4 cent lower, at $3.984 per million British thermal units. Front-month gas surged 12.1%, or 43.2 cents, over the prior eight sessions, edging up toward $4/mmBtu for the first time in six months. The contract settled Monday at $3.988/mmBtu, the highest price since June 5.

A prolonged cold spell across the Midwest and the Eastern U.S., major markets for gas-fired home heating, sparked the run-up in prices and some market participants are expecting a replay of that in coming weeks.

"We see odds as strong of new highs in today's trade with January futures closing above the $4 mark either today or tomorrow," said Jim Ritterbusch, president of Ritterbusch and Associates.

Mr. Ritterbusch said he believes the recent cold means gas inventories were drawn down much more than normal last week to meet demand. He expects data due out at 10:30 a.m. EST Thursday from the Energy Information Administration to show inventories dropped by 140 billion cubic feet in the week ended Nov. 29. That would be nearly 100 bcf more than the five-year average drop for the week.

EIA said that in the week ended Nov. 22, gas in storage totaled 3.776 trillion cubic feet, down 2.6% from a year earlier and 0.5% above the five-year average for that week.

For now, traders said, strong demand may overshadow concerns over record-high output and the potential for power utilities to switch to burning coal instead of increasingly more expensive gas.

Mr. Ritterbusch said he believes prices could soon climb to $4.12/mmBtu, a level last seen in late May, if the cold forecasts prove correct.

Forecasters at MDA said warm weather in the Midwest and East over the next five days is expected to yield to blast of cold air that will dramatically reverse current conditions. In Chicago, average temperatures are expected to be 14.5 degrees above normal on Wednesday, but will drop to 15.5 degrees below normal averages on Saturday. Similar forecasts hold through the northeast. Boston average temperatures will swing from 9.5 degrees above normal on Thursday to 8 degrees below normal on Sunday and hover in that area for much of next week.

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $3.835/mmBtu, according to IntercontinentalExchange, versus Monday's average of $3.8275. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $3.82/mmBtu, down from $3.825 on Tuesday.

Write to David Bird at [e-mail]

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