NEW YORK (Dow Jones)--Natural gas futures fell Thursday as slightly warmer weather forecasts hit gas-heating demand expectations and limited the boost from a government report that showed a larger-than-average decline in gas inventories.
Natural gas for February delivery settled down 3.9 cents, or 0.9%, at $4.434 per million British thermal units on the New York Mercantile Exchange.
Futures had climbed as high as $4.623/MMBtu earlier Thursday after the U.S. Energy Information Administration reported that natural-gas inventories fell by 135 billion cubic feet last week, more than consensus estimates for a withdrawal of 128 bcf in a Dow Jones Newswires survey.
But enthusiasm about the report faded as some warmer midday weather forecasts suggested that gas heating needs may be less than expected in late January.
The week of Jan. 16 is now expected to be warmer than previously forecast over the central U.S., said Matt Rogers, president of private forecaster Commodity Weather Group. While cold weather is still likely for much of the next two weeks, "the models are having a lot of trouble with the final part of January," Rogers said. "I think the end of January could see some warming."
Gas futures climbed during the first two trading days of 2011, with traders counting on the cold weather seen for January to lead to large inventory declines.
A supply overhang pressured futures for much of 2010, as rising production from U.S. shale rock formations helped overwhelm demand. Inventories hit a record high in November, and gas prices on the year fell 21%.
The oversupply "is still holding sway here," said Larry Young, president of Covenant Trading LLC. "It's the same story," with traders eager to cash out of the market after small gains, Young said.
Inventories last week were 6.5% above the five-year average, down from almost 10% above average in November.
Natural gas in U.S. storage during the week ended Dec. 31 stood at 3.097 trillion cubic feet. Stockpiles are still widely seen comfortably meeting winter's heating needs.
Last week's 135-bcf draw was larger than the five-year average withdrawal for that week of 79 bcf, but less than last year's 149-bcf decline. Market participants pay close attention to these reports because they provide an indicator of the balance between gas supplies and demand.
