Natural gas for May delivery settled up 10.8 cents, or 4.1%, at $2.713 a million British thermal units on the New York Mercantile Exchange. It was the largest one-day gain since March 17.
The U.S. Energy Information Administration said natural-gas storage levels fell by 18 billion cubic feet in the week ended March 27. The consensus average of 18 forecasters surveyed by The Wall Street Journal was for nine billion cubic feet.
The EIA data are widely considered as one of the best measures of supply and demand. The latest drawdown indicated either lower supply or larger demand than had been expected. It was nearly on a par with the 22-bcf five-year average for the week—a bullish surprise for the market, where prices have recently been capped by near-record supply.
It is hard to say why expectations for the drawdown were so far off, but cold weather probably led to more heating demand than expected, and power plants may have used more gas than foreseen, said Stephen Smith, an energy consultant in Natchez, Miss. Prices had been trading near their lows from 2012 early Thursday. "This is a relief rally, where people say ‘It isn’t quite as bad as we thought,’” he said.
A slow advance started even before the EIA data were released, in part because of how far prices had fallen, a broker and a trader said. Most money managers are ultimately betting prices will go lower, but many traders buy in to close out some of those bets and protect themselves as prices near lows that haven’t been seen in weeks or years. Hitting some of those milestones often foreshadows a turnaround, and the room for returns on bearish bets also narrows when prices get so low.
The strong EIA number reinforced the momentum to buy, said John Woods, president of JJ Woods Associates and a Nymex trader. "Any time [gas] gets below [$2.60], you look at your risk-reward, you look at weather patterns, and I’m bullish when you get to that number,” Mr. Woods said. "People aren’t ready for low natural gas.”
They may get lower-priced natural gas, anyway, according to many analysts and investors. Production remains near record levels, and many people expect stockpiles to exceed the five-year average later this year.
Current ocean temperatures are the kind that usually lead to mild summers, which would cut demand for gas-fired power to run air conditioners, BNP Paribas SA said Tuesday. There are so many wells drilled but not producing that they could keep prices in the Northeast below $2 a million BTUs as they come online over years, Citigroup Inc. said in a research note Wednesday.
"Everyone knows it’s in oversupply,” said Eric Crittenden, chief investment officer at Longboard Asset Management, a Phoenix firm. Its Longboard Managed Futures Strategy Fund, a $248 million mutual fund, has bet May gas futures will fall, a position known as short selling. "We’re short pretty much every [deeply traded] energy market on the planet right now.”
(WSJ, April 2, 2015)
