Natural gas futures - Weekly outlook: March 26 - 30

Investing.com - Natural gas prices were largely unchanged on Friday, steadying after the previous day’s almost 4% sell-off as sentiment on the heating fuel remained downbeat amid ongoing concerns over elevated U.S. storage levels.

On the New York Mercantile Exchange, natural gas futures for delivery in April settled at USD2.269 per million British thermal units by close of trade on Friday, retreating 2.78% over the week.

Gas prices fell to USD2.259 on Thursday, the lowest since March 16, after the U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. rose by 11 billion cubic feet last week.

Analysts had expected U.S. natural gas storage to rise by 10 billion cubic feet.

Inventories fell by 20 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a decline of 17 billion cubic feet, according to U.S. Energy Department data.

The build came about two weeks earlier than usual and was the earliest seasonal increase in stored supplies since 2007.

Total U.S. natural gas storage stood at 2.380 trillion cubic feet as of last week, 47% above year-ago levels and 54% higher than the five-year average.

Prices swung between small gains and losses on Friday as traders closed out bets on lower prices, a move known as covering a short position while other investors were reluctant to bet that prices will drop further.

Natural gas traders also noted a trend in price movements over the past four weeks, with futures declining on Thursday on bearish gas-storage data and buyers emerging on Friday to snap up gas contracts on bargain buying.

Market participants shrugged off a report from industry research group Baker Hughes on Friday showing that that the number of active rigs drilling for natural gas in the U.S. fell to a fresh ten-year low of 652 last week, a decline of 11 rigs from the preceding week.

It was the eleventh consecutive weekly decline. While the rig count is well below the 800 level some said was needed to slow record output, analysts said the decline has yet to be reflected in pipeline flows.

A recent Bernstein report said the gas-directed rig count would have to drop to about 600 before it would be comfortable forecasting flat to falling production, but some traders think that number is still too high.    

Natural gas traders expect the near-term downtrend in prices to continue amid indications demand for the heating fuel will remain weak in the near-term.

Latest forecasts from the National Oceanic and Atmospheric Administration show above-normal temperatures covering most of the U.S. into early April, capping off an abysmal heating season for the U.S. natural-gas market.
 
According to the NOAA, temperatures in the continental U.S. in December through February were the warmest since 2000.

Prices fell to USD2.208 per million British thermal units on March 13, the lowest since February 2002, as market sentiment has been dominated for months by concerns over elevated U.S. storage levels and mild weather that has limited demand for the fuel.

Some market analysts expect prices to fall to fresh 10-year lows as early as this Wednesday, March 28, when the April contract expires, while other believe prices will drop even further and test the USD2.00-level amid expectations U.S. gas inventories will end the winter at a record high 2.45 trillion cubic feet, well above the previous high of 2.148 trillion set in 1983.

Early injection estimates for next week’s storage data range from 43 billion cubic feet to 58 billion cubic feet, compared to the five-year average decline for the week of 8 billion. Supplies rose by 7 billion cubic feet in the same week a year earlier.

Natural gas prices have plunged almost 13% since the beginning of March and are down nearly 24% since the start of 2012.

Market participants noted that April is considered a transition month for natural gas.

Futures contracts tend to trade more lightly during spring months because demand for heating is weak and natural gas-fueled power plants have yet to step up production to serve air conditioners.

Elsewhere on the NYMEX, light sweet crude oil futures for May delivery traded at USD106.80 a barrel by close of trade on Friday, slumping 0.98% on the week, while heating oil for April delivery retreated 2.25% over the week to settle at USD3.209 per gallon by close of trade Friday.