Front-month natural gas futures settled below $4 a million British thermal units Thursday--the lowest level in nearly three months--despite frigid weather in the U.S. and a large withdrawal from gas in storage.
Natural gas for March delivery settled down 5.8 cents, or 1.4%, at $3.986 a million British thermal units, even though the U.S. Energy Information Administration reported earlier Thursday a larger-than-average withdrawal of 209 billion cubic feet from storage last week as more gas was used to heat homes due to cold weather.
But the market looked past the large withdrawal and focused on forecasts of warmer weather approaching, with a large amount of natural gas still in storage.
"You would've thought the market would've rallied. Natural gas is probably the most depressing commodity I've seen," said Tony Rosado, a broker with GA Global Markets in New York.
"It just goes to show you, all the extra shale gas that's out there--we've got more nat gas than we can deal with," he said.
The EIA report showed natural gas in storage during the week ended Feb. 4 at 2.144 trillion cubic feet, 2.1% below the five-year average and 4.4% less than last year's levels.
Despite the increased balance in the supply-and-demand picture, futures continue to come under pressure from expectations that strong production from shale-gas drilling, a relatively new technique that has unlocked new supply, will flood the market with gas once winter's peak demand comes to an end.
The middle of February is expected to bring milder weather to much of the country. Forecasting models "continue to be in excellent agreement on next week's major warming for the eastern two thirds of the U.S.," meteorologists with Commodity Weather Group said Thursday.
The private forecaster sees above- and much above-normal temperatures east of the Rocky Mountain states Feb. 15-19, with mild weather continuing thereafter in the south and east.
"Another big withdrawal and another shrug from the market," Houston energy consultancy Gelber & Associates wrote in a note to clients. "This should tell us two things...1) There's tremendous faith in production levels and 2) All eyes are on the forecasts ahead instead of the frigid weather we're enduring today."