Natural gas futures rally 5% after U.S. supply drop

Investing.com - Natural gas futures added to strong gains on Thursday, rallying more than 5% after a report from the U.S. Energy Information Administration showed that natural gas inventories declined more-than-expected last week.

On the New York Mercantile Exchange, natural gas futures for delivery in March traded at USD2.547 per million British thermal units during U.S. morning trade, soaring 5.03%.       

It earlier rose by as much as 5.25% to trade at a session high of USD2.553 per million British thermal units.

The March contract traded at USD2.455 prior to the release of the U.S. Energy Information Administration report.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended February 10 fell by 127 billion cubic feet, after declining by 78 billion cubic feet in the preceding week.

Analysts had expected U.S. natural gas storage to drop by 126 billion cubic feet.

Inventories fell by 230 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a decline of 178 billion cubic feet, according to U.S. Energy Department data.

Total U.S. natural gas storage stood at 2.761 trillion cubic feet as of last week. Stocks were 817 billion cubic feet higher than last year at this time and 765 billion cubic feet above the five-year average of 1.996 trillion cubic feet for this time of year.

The report showed that in the East Region, stocks were 302 billion cubic feet above the five-year average, following a withdrawal of 83 billion cubic feet.

Stocks in the Producing Region were 365 billion cubic feet above the five-year average of 686 billion cubic feet, after a net withdrawal of 37 billion cubic feet.

Despite the strong gain, prices were expected to remain under pressure as concerns over elevated U.S. inventory and production levels still lingered.  

Inventory withdrawals this winter are running nearly 480 billion cubic feet below average, or about 33%, due to the lack of heating demand this winter.

Natural gas traders continued to monitor weather forecasts in key gas-consuming regions in the U.S. to gauge demand for the heating fuel.

Weather forecasters are predicting colder-than-normal temperatures across much of the U.S. West Coast and Rocky Mountain-region states in the next three-to-five-days.

However, milder temperatures were expected to return across most of the U.S. during the final two weeks of February.

This is typically the coldest time in winter, but temperatures in the U.S. have yet to reach levels cold enough to boost demand for the heating fuel, keeping prices depressed at unseasonably low levels.

Winter so far in the U.S. has been the second mildest since 1950. It is running about 13% warmer than the 30-year normal, according to recent data from MDA EarthSat.    

Gas prices fell to USD2.319 per million British thermal units on January 20, the lowest since February 2002, before rebounding after a production-cut announcement by Chesapeake Energy sparked a massive short-covering rally.

However, market participants are reluctant to bet that prices will rise further amid a lack of production cut announcements from other major U.S. natural gas producers.

Traders said planned cuts so far were not enough to tighten a market seen oversupplied by as much as 3 billion cubic feet per day, or more than 4%.

Most analysts now expect gas inventories to end the winter at approximately 2.1 trillion cubic feet, 35% above average and near the all-time high for end-season storage of 2.148 trillion cubic feet set in 1983.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in April shed 0.3% to trade at USD101.82 a barrel, while heating oil for March delivery slumped 0.4% to trade at USD3.178 per gallon.