NEW YORK (Dow Jones)--Natural gas futures slid Thursday as a government report showed inventories last week were above average for the first time since late January, as mild weather continues to take a toll on demand for the heating fuel.
Natural gas for April delivery settled 10 cents, or 2.5% lower, at $3.830 a million British thermal units on the New York Mercantile Exchange.
The Energy Information Administration said U.S. gas stockpiles fell by 71 billion cubic feet last week, short of consensus estimates in a Dow Jones Newswires survey for a 77-bcf draw and less than the 107-bcf five-year average draw.
Inventories on March 4 were 1.3% above the five-year average, and 1.9% more than 2010 levels, a sharp reversal from mid-February, when stocks were almost 7% below average.
The market has been under pressure for much of the last year from the view that domestic production would rise faster than demand. Rising output from North American shale rock formations has made traders eager to bet on a continued supply overhang, and those expectations have helped keep prices at unusually low levels.
Futures are down sharply from late-January levels as market participants bet that spring's lull in gas demand would allow production to rapidly replenish inventories.
The EIA said stockpiles held in the traditional gas-producing states rose for a second consecutive week, the earliest point in the year that supplies there have showed two straight weeks of injections since 1998.
Gas futures traded lower before the report as forecasters continued to see mild weather across much of the U.S. during the next two weeks. Normal or warmer-than-normal temperatures are expected to encompass much of the country through the end of next week, meteorologists with private forecaster Commodity Weather Group say, with warmth seen lingering in the Central U.S. thereafter.
The benchmark contract has traded in a narrow range in recent weeks, shifting between about $3.75 and $4.10 as market participants weighed whether the market's declines since January had sufficiently accounted for coming mild temperatures and the accompanying drop in heating needs.
"Traders have spoken," said Pax Saunders, an analyst with Gelber & Associates. "We like it in neutral."