Tuesday, July 15, 2014

Natural Gas Supply Gains Keep Driving Bulls From Market

Twelve weeks of above-average gains in U.S. natural gas supply are easing concern over winter fuel shortages and spurring speculators to cut their bets on rising prices.

Hedge funds reduced net-long positions by 8.1 percent in the week ended July 8, the U.S. Commodity Futures Trading Commission said.

Bullish wagers have fallen 43 percent from February and gas dropped last week to a six-month low, wiping out an advance of as much as 53 percent after frigid weather pushed consumption to a record.

Stockpiles more than doubled from an 11-year low in March as mild weather curbed power-plant demand and output expanded for the ninth straight year.

Storage rose more than 100 billion cubic feet for eight weeks in a row, the longest streak of triple-digit increases in government data going back 20 years.

“It looks like the market is going to be in balance heading into the winter,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone July 11.

“The combination of modest summer weather and robust drilling has let people believe that inventory will grow to normal levels.”

Natural gas dropped 25.1 cents, or 5.6 percent, to $4.204 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report.

Prices closed at $4.146 on July 11, capping a fourth weekly decline. The futures fell 0.3 percent to $4.133 at 1:48 p.m. today.

More Supply

Gas storage rose 93 billion cubic feet to 2.022 trillion in the week ended July 4, a gain bigger than the five-year average for the 12th straight week, according to Energy Information Administration data.

A cold front will push across the central and eastern states from July 16 through July 20, according to Commodity Weather Group LLC of Bethesda, Maryland.

A drop in demand in the South will more than offset gains from a heat wave in the West, the forecaster said.

The high temperature in Dallas July 17 will be 78 degrees Fahrenheit (26 Celsius), 18 below normal, according to AccuWeather Inc. in State College, Pennsylvania.Washington’s reading will be 5 lower than average at 84.

“The updated weather forecasts not only show an impressive cold intrusion lingering over much of the country but the timing occurs when the potential for cooling demand is typically at a high point,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a July 11 note to clients.

More Production

Gas production will help raise inventories to 3.431 trillion cubic feet by the end of October, which would be the lowest level before the peak heating-demand season since 2008, according to an EIA July 8 report.

Output will rise 4.1 percent to 73.08 billion cubic feet a day from 2013 level as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA forecasts.

“Summer is going to be over soon and storage numbers have come in pretty strong for many weeks,” Donnie Sharp, natural gas supply coordinator for Huntsville Utilities in Huntsville, Alabama, said by phone on July 11.

“There may be an opportunity for a bit lower prices.” In other markets, easing supply concern from Iraq to Libya forced speculators to reduce bullish oil bets for a third week. Money managers cut net-long positions in benchmark West Texas Intermediate futures by 7.8 percent to 304,366 futures and options combined in the week ended July 8, CFTC data show.

WTI Slide

WTI futures slid 1.8 percent to $103.40 a barrel on the New York Mercantile Exchange in the period covered by the report. The contract was little changed today after settling at $100.83 on July 11.

Net-long positions in gasoline fell by 2.7 percent to 65,190, the CFTC report showed. Futures fell 6.4 percent to $2.9729 a gallon on the Nymex in the week covered by the report and settled at $2.9085 on July 11.

Gasoline at U.S. pumps, averaged nationwide, slipped 0.8 cent to $3.631 a gallon on July 10, according to data from Heathrow, Florida-based AAA, the nation’s largest motoring group. Retail prices are down 1.8 percent from a 13-month high on April 26.

Money managers’ bets on ultra-low sulfur diesel dropped by 41 percent to 22,634, the CFTC report show. Futures slid 3.5 percent to $2.8736 a gallon in the week covered by the report and closed at $2.8609 on July 11.

Net-long positions on four U.S. natural gas contracts held by money managers declined by 20,642 futures equivalents to 234,190, the least since Dec. 3.

Gas Contracts

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.

Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel. Long positions fell by 1.9 percent, while bearish bets gained 4 percent to 272,510, the most since Dec. 10.

“The temperate weather combined with increased production are weighing on prices,” Peter Buchanan, senior economist at CIBC World Markets Inc. in Toronto, said in a July 11 telephone interview. “The weather hasn’t been quite as hot so far this summer and that is helping to restrain demand.”

bloomberg.com

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