NEW YORK (Dow Jones)--Natural gas futures slid Wednesday as market participants cashed out to profit from the market's recent strength amid moderating weather forecasts and high inventories.
Natural gas for February delivery settled 19.6 cents, or 4.2% lower, at $4.473 a million British thermal units on the New York Mercantile Exchange, erasing gains made earlier this week. The benchmark contract had climbed by 14% between Dec. 24 and Tuesday's close, as cold weather expected in mid-January increased gas-heating demand expectations.
But some slightly warmer forecasts Wednesday provided an opportunity for market participants to cash out of the market to profit from its advance, analysts said. Forecasters still expect frigid weather across much of the U.S. during the next two weeks, but some milder temperatures entered the forecast Wednesday.
Forecasts call for slightly warmer temperatures than previously anticipated Jan. 15-19, with near-normal seasonal temperatures seen for parts of the Southeast, Northeast and Southwest, meteorologists with private forecaster MDA EarthSat said.
"The core of the coldest conditions are still likely to be found from the Northern Rockies to Northern Plains and Upper Midwest where widespread much below to strong below anomalies should continue," MDA forecasters say.
Gas prices had abruptly plunged after reaching multi-month highs in early December, and some traders were likely selling Wednesday to protect themselves from a repeat performance should this week's rally turn out to be equally fleeting, said Walter Zimmermann, chief technical analyst with United-ICAP.
After rising above $4.60/MMBtu on Dec. 6, the benchmark futures contract plunged to $3.95/MMBtu during the following seven sessions.
"People remember what happened when they stayed long at these prices just a few weeks ago," Zimmermann said. He added that Wednesday's selloff was likely a brief pullback rather than the start of a new downward direction for the market.
Meanwhile, traders are awaiting gas storage data expected to show a larger-than-average draw from U.S. stockpiles last week as cold weather boosted heating demand. The U.S. Energy Information Administration is expected to report that 128 billion cubic feet of gas were withdrawn from storage during the week ended Dec. 31, according to a Dow Jones Newswires survey.
The estimate is larger than the 79-bcf five-year average withdrawal on the week. Last year, 149 bcf were withdrawn from storage.
The EIA's weekly report is scheduled for release Thursday at 10:30 a.m. EST.
Natural gas prices have been pressured during the past two years by a supply overhang, as production growth from shale rock formations overwhelmed recession-hit demand and bloated inventories.