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NEW YORK (Dow Jones)--Natural gas futures plummeted nearly 8% after a volatile session Tuesday, wiping out a week's worth of gains, as mild weather and abundant supply continued to weigh on the market.
Natural gas futures prices for March delivery were down nearly 8.6% at their lowest point during the session, before recovering slightly to end the day 21 cents, or 7.8%, lower at $2.503 a million British thermal units on the New York Mercantile Exchange. The settlement price was the lowest since Jan. 20.
Gas prices had rallied off recent lows last week on news that major producers, including Chesapeake Energy, the second-biggest U.S. gas producer, would cut output to alleviate the market's oversupply. On Tuesday, traders and analysts didn't cite any single cause driving the market lower, but they did point to the absence of one specific thing: additional announcements from other producers saying they would follow Chesapeake's lead in scaling back or ceasing activity. That, combined with continued predictions for mild weather in the coming days and U.S. government data from Monday showing gas production at record levels, weighed heavily on the market.
"We did get a couple producer shutdown announcements but we haven't seen any further ones," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn. "We need to see additional producers shut [down], and signs that drilling activity's going to be cut back. Until we see either that or really cold weather, the market's going to [be] mired in the low price environment we're in."
Really cold weather didn't appear to be an option in the near future. Natural gas is a key component in home heating, and demand rises as temperatures drop. But this heating season, mild weather combined with robust production from U.S. shale fields has undercut the market's economics. The National Weather Service said above-normal temperatures will prevail over much of the west and northwest during the next six to 10 days, though the northeast will see normal temperatures and the southeast will face a cold snap. Further out, MDA EarthSat said "the forecast has taken a major warm shift," and that predictions for below-normal temperatures in the Northeast as far out as Valentine's Day were weakening.
"For sure, this has been the winter that didn't happen," said Tom Saal, a senior vice president of energy trading at INTL Hencorp Futures in Miami. "The warm weather, or the lack of cold weather, has taken a lot of the zap out of the contract. If there's no compelling impetus it's going to drift lower."
Natural gas futures prices for March delivery were down nearly 8.6% at their lowest point during the session, before recovering slightly to end the day 21 cents, or 7.8%, lower at $2.503 a million British thermal units on the New York Mercantile Exchange. The settlement price was the lowest since Jan. 20.
Gas prices had rallied off recent lows last week on news that major producers, including Chesapeake Energy, the second-biggest U.S. gas producer, would cut output to alleviate the market's oversupply. On Tuesday, traders and analysts didn't cite any single cause driving the market lower, but they did point to the absence of one specific thing: additional announcements from other producers saying they would follow Chesapeake's lead in scaling back or ceasing activity. That, combined with continued predictions for mild weather in the coming days and U.S. government data from Monday showing gas production at record levels, weighed heavily on the market.
"We did get a couple producer shutdown announcements but we haven't seen any further ones," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn. "We need to see additional producers shut [down], and signs that drilling activity's going to be cut back. Until we see either that or really cold weather, the market's going to [be] mired in the low price environment we're in."
Really cold weather didn't appear to be an option in the near future. Natural gas is a key component in home heating, and demand rises as temperatures drop. But this heating season, mild weather combined with robust production from U.S. shale fields has undercut the market's economics. The National Weather Service said above-normal temperatures will prevail over much of the west and northwest during the next six to 10 days, though the northeast will see normal temperatures and the southeast will face a cold snap. Further out, MDA EarthSat said "the forecast has taken a major warm shift," and that predictions for below-normal temperatures in the Northeast as far out as Valentine's Day were weakening.
"For sure, this has been the winter that didn't happen," said Tom Saal, a senior vice president of energy trading at INTL Hencorp Futures in Miami. "The warm weather, or the lack of cold weather, has taken a lot of the zap out of the contract. If there's no compelling impetus it's going to drift lower."
