Four Trillion Cubic Feet of U.S. Gas Drags Prices to Week's Low

  • `Nothing's changed here; 4 tcf is a psychological number'
  • Analyst estimates had projected gain of 19 bcf last week

The shale boom gave natural gas bears another handhold to keep their grip on the market: Stockpiles swelled to 4 trillion cubic feet for the first time. Gas futures tumbled to a one-week low.

Inventories expanded by 15 billion cubic feet in the week ended Nov. 13, the U.S. Energy Information Administration said Thursday. Analyst estimates projected a gain of 19 billion while a survey of Bloomberg users predicted an increase of 20 billion. Storage levels had already touched record highs in the first week of November.

Prices are down 21 percent this year, the biggest year-to-date decline since 2011, as robust supplies overwhelm demand and as unusually mild weather delays the start of the peak heating season. Money managers earlier this month held a record net-short position in gas contracts.

“Nothing’s changed here; 4 tcf is a psychological number,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “That said, gas prices are holding here, and if you can hold gas at this point with this much gas in the ground without any significant weather, that is where the support is.”

Gas futures for December delivery dropped 7.1 cents, or 3 percent, to $2.276 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Nov. 12.

December $2.50 calls were the most active options in electronic trading, sliding 1.6 cents to 0.6 cent on volume of 1,143 contracts at 3:06 p.m. Put options for $2.15 for the same month rose 0.9 cent to 2.1 cents.

Average Change

The storage gain bucked the five-year average change for the week of a 12 billion cubic foot withdrawal. A supply surplus to the average widened to 5.5 percent from 4.7 percent the previous week, the EIA said. Stockpiles were 11.2 percent above year-earlier levels compared with 10.5 percent in the last report.

“While inventories and production are really strong, the fact is, we do have three months of winter coming up,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “So you can see the market does have a certain amount of buoyancy.”

Weather Outlook

Overnight, weather forecasts turned warmer for the regions that consume the most heating fuels, according to Commodity Weather Group LLC. Temperatures along the East Coast will be seasonal Nov. 24 through Nov. 28 and the Midwest will be above normal. Previous computer models showed below-normal readings in the mid-Atlantic to the Southeast with seasonally cold weather around the Great Lakes.

The high temperature in New York City on Nov. 27 may be 59 degrees Fahrenheit (15 Celsius) and Chicago will reach 51, 9 above normal for each city, according to AccuWeather Inc.’s website. About 49 percent of U.S. households use gas for heating.

Gas production increased in 2015 for the 10th straight year thanks to drilling efficiencies and pipeline capacity that helped new wells come online at shale deposits such as the Marcellus in the East, the EIA said in its monthly outlook on Nov. 10. Output will rise by 6.3 percent to 79.61 billion cubic feet a day and then expand by 2 percent in 2016 to 81.20 billion.

“Mild weather in addition to sequentially higher Northeast production are likely to maintain working gas in storage at historically elevated levels,” Goldman Sachs Group Inc. analysts said Nov. 18 in a report led by Michael Hinds.

The key downside risks to the bank’s fourth-quarter price forecast of $2.50 per million Btu are “forecasts for a mild winter in light of the ongoing strong El Nino,” the analysts said. Milder-than-normal weather has kept gas demand by residential and commercial consumers below seasonal levels over the past few weeks, they said.

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