Natural gas supply driving bulls from market

Twelve weeks of above-average gains in U.S. natural gas (NYMEX:NGN14) supply are easing concern over winter fuel shortages and spurring speculators to cut their bets on rising prices.

Hedge funds reduced net-long positions by 8.1% in the week ended July 8, the U.S. Commodity Futures Trading Commission said. Bullish wagers have fallen 43% from February and gas dropped last week to a six-month low, wiping out an advance of as much as 53% after frigid weather pushed consumption to a record.

Stockpiles more than doubled from an 11-year low in March as mild weather curbed power-plant demand and output expanded for the ninth straight year. Storage rose more than 100 billion cubic feet for eight weeks in a row, the longest streak of triple-digit increases in government data going back 20 years.

“It looks like the market is going to be in balance heading into the winter,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone July 11. “The combination of modest summer weather and robust drilling has let people believe that inventory will grow to normal levels.”

Natural gas dropped 25.1 cents, or 5.6%, to $4.204 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Prices closed at $4.146 on July 11, capping a fourth weekly decline. The futures fell 0.3% to $4.135 at 8:52 a.m. today.
 

More Supply
 

Gas storage rose 93 billion cubic feet to 2.022 trillion in the week ended July 4, a gain bigger than the five-year average for the 12th straight week, according to Energy Information Administration data.

A cold front will push across the central and eastern states from July 16 through July 20, according to Commodity Weather Group LLC of Bethesda, Maryland. A drop in demand in the South will more than offset gains from a heat wave in the West, the forecaster said.

The high temperature in Dallas July 17 will be 78 degrees Fahrenheit (26 Celsius), 18 below normal, according to AccuWeather Inc. in State College, Pennsylvania. Washington’s reading will be 5 lower than average at 84.

“The updated weather forecasts not only show an impressive cold intrusion lingering over much of the country but the timing occurs when the potential for cooling demand is typically at a high point,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a July 11 note to clients.

 

More Production
 

Gas production will help raise inventories to 3.431 trillion cubic feet by the end of October, which would be the lowest level before the peak heating-demand season since 2008, according to an EIA July 8 report.

Output will rise 4.1% to 73.08 billion cubic feet a day from 2013 level as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA forecasts.

“Summer is going to be over soon and storage numbers have come in pretty strong for many weeks,” Donnie Sharp, natural gas supply coordinator for Huntsville Utilities in Huntsville, Alabama, said by phone on July 11. “There may be an opportunity for a bit lower prices.”

In other markets, easing supply concern from Iraq to Libya forced speculators to reduce bullish oil bets for a third week.

Money managers cut net-long positions in benchmark West Texas Intermediate futures by 7.8% to 304,366 futures and options combined in the week ended July 8, CFTC data show.

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