Futures drop 4% as focus shifts to warm weather
--Decline wipes out previous day's gains
--Futures down 25% from year earlier
By Dan Strumpf Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Natural gas futures sold off sharply Friday, as traders focused on elevated U.S. gas supplies and the likelihood that they will stay that way through the winter.
Natural gas for January delivery settled down 14 cents, or 4.1%, to $3.317 a million British thermal units on the New York Mercantile Exchange.
The settlement was the lowest since Nov. 18, when front-month futures sank to a one-year low of $3.316/MMBtu.
The decline has erased all of the previous day's gains, which were spurred by a government report showing a bigger-than-expected draw in natural gas inventories last week. Traders initially took the Department of Energy report as a sign of improving demand for gas-fired heating.
But the draw was well below what is normally expected this time of year, and on Friday traders came to the conclusion that future declines this winter are likely to remain small due to the mild temperatures expected across much of the country, said Pax Saunders, analyst at Gelber & Associates.
"The (supply-demand) fundamentals are already set up for a big drop," Saunders said.
Gas stockpiles fell 20 billion cubic feet last week, the DOE reported on Thursday. The draw was above the 12-bcf decline forecast by analysts, but was well below the 66-bcf draw that is the five-year average for that week.
Total stocks came in at 3.831 trillion cubic feet, according to the DOE, above the five-year average of 3.524 tcf for the same week.
Saunders said he expects further draws of about 400 bcf over the next four weeks, which is well below the decline that normally accompanies the falling temperatures for this time of year.
"The market has easily been connecting the dots between these mild temps and a seasonal supply draw during December that will prove unusually modest," said Jim Ritterbusch, head of the trading advisory firm Ritterbusch and Associates, in a research report.
On Friday, MDA EarthSat said it sees above-average temperatures across much of the eastern and southern U.S. in its six-to-10-day and 11-to-15-day forecast. Temperatures in the western portion of the country are cooler though.
Gas futures typically climb this time of year, as temperatures fall and demand from homes and offices for heating fueled by natural gas rises. But mild weather coupled with surging production of natural gas has kept prices low. Prompt-month futures are down 25% from a year ago.
