Natural Gas Production Forecast is Up for All 2010

By Reg Curren

Feb. 24 (Bloomberg) -- Natural gas futures rose for the first time in five days, rebounding from an 11-week low, before a government report tomorrow that will probably show a bigger- than-average decline in U.S. stockpiles.
The Energy Department report may show that supplies fell 169 billion cubic feet last week, based on the median of 24 analyst estimates compiled by Bloomberg. The five-year average decline is 132 billion. Cold weather and snow along the East Coast will probably lift demand this week.
“We do expect a flip in the year-to-year from a surplus to a deficit and there’s a good chance we’ll eat substantially into the five-year,” said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. “We still have plenty of heating demand in front of us.”
Natural gas for March delivery rose 3.8 cents, or 0.8 percent, to settle at $4.816 per million Btu at 2:34 p.m. on the New York Mercantile Exchange. The March contract expired today. The April contract advanced 5 cents, or 1 percent, to $4.859.
Cold weather this winter narrowed the gas inventory surplus to the five-year average to 2.7 percent, or 53 billion cubic feet, in the week ended Feb. 12 from 15.7 percent in early December.
Futures also advanced as a winter storm watch was posted for New York City and other areas in the eastern U.S. New York may get as much as 10 inches of snow by Feb. 26, according to the National Weather Service.
Short Positions
“We broke down to the $4.75 support area and with the number tomorrow and the weather changing with the snowstorms, people are squaring out of short positions,” said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. “People are just content to buy back short positions.”
Below-normal temperatures are forecast for much of the eastern half of the country through March 5, according to Commodity Weather Group of Bethesda, Maryland. Milder weather is anticipated after that.
Hedge-fund managers and other large speculators increased their net-short position in New York gas futures in the week ended Feb. 16, according to U.S. Commodity Futures Trading Commission data.
Speculative short positions, or bets prices will fall, outnumbered long positions by 154,292 contracts on the New York exchange, the Washington-based commission said in its Commitments of Traders report. Net-short positions rose by 3,465, or 2.3 percent, from a week earlier.
Trading Range
Gas futures will probably stay in a tight range around $5 per million Btu as U.S. supplies appear to be adequate to meet the rest of winter demand, Scott Hanold, an analyst at RBC Capital Markets in Minneapolis, said in a telephone interview.
“Storage is looking a little better, but not a whole lot,” Hanold said. “When you get out into spring we’re going to lose our heating demand and production is going to start ramping up.”
The Energy Department on Feb. 10 raised its forecast for nationwide natural gas production in 2010 to an average of 58.73 billion cubic feet a day from 58.41 billion estimated a month earlier.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, fell 0.16 cent to $4.909 per million Btu, according to data compiled by Bloomberg.
Gas futures volume in electronic trading on the Nymex was 141,891 contracts as of 2:59 p.m., compared with a three-month daily average of 241,000. Volume totaled 212,760 yesterday. Open interest was 794,836 contracts, compared with the three-month average of 748,000. The exchange has a one-business-day delay in reporting open interest and full volume data.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net
Last Updated: February 24, 2010 16:12 EST