NEW YORK (Dow Jones)--Natural gas futures fell Thursday ahead of a government storage report expected to show a smaller-than-average weekly draw in U.S. inventories as mild weather reduced demand for the heating fuel.
Natural gas for March delivery recently traded 6.4 cents, or 1.6% lower, at $3.836 a million British thermal units on the New York Mercantile Exchange.
The contract expires at settlement Thursday. Gas for April delivery on the exchange recently traded 1.6% lower, at $3.872/MMBtu.
The Energy Information Administration is expected to report that 81 billion cubic feet of gas was withdrawn from storage last week, according to average estimates in a Dow Jones Newswires survey of gas analysts and traders. The draw would be less than both 148-bcf five-year average draw and last year's 174-bcf withdrawal during the same week.
The EIA's weekly report is scheduled for release at 10:30 a.m. EST.
"Aside from a small uptick in California and Florida, implied gas-furnace demand eased in every market region" on the week, said Stephen Schork, energy analyst and author of the Schork Report, in a client note.
Larger-than-average declines in stockpiles amid frigid weather supported gas prices above $4/MMBtu in December and January, but with the arrival of milder temperatures in recent weeks, market participants started looking ahead to the coming spring dip in gas demand.
Inventories as of February 11 stood at 1.911 trillion cubic feet, 6.3% below the five-year average, the EIA said last week, a dramatic reversal from November's record-high inventory levels nearly 10% above average.
Many analysts aren't expecting the more balanced supply picture to last, as North American gas production growth is seen outpacing increases in demand in 2011. Despite unusually low prices for natural gas, industry observers say producers haven't cut back on drilling by enough to stifle production growth.
The EIA in its latest outlook saw U.S. marketed gas production increasing by 0.8% in 2011 compared with year-earlier levels, while domestic consumption is expected to increase by 0.3%.
Meanwhile, forecasts continue to see a two-tiered weather pattern across the country during the next two weeks, with colder-than-normal temperatures across parts of the north and west, and mild or warmer-than-normal temperatures in the south. Forecasters expect the most severe cold to be limited to the northern plains states and Western Canada.
Colder-than-normal temperatures are seen for much of the West Coast and parts of the upper Midwest March 6-10, with warmth expected in the East Coast, meteorologists with private forecaster Commodity Weather Group said Thursday.
