--Gas inventories expected to show smaller-than-average decline
--Eastern U.S. temperatures above normal through end of month
--Retest of 10-year lows may be coming, analyst says
By David Bird
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Natural-gas futures prices were trading lower early Wednesday, as lingering above-normal temperatures in the Eastern U.S. cuts demand and feeds a growing supply glut.
Above-normal temperatures that have sapped homeowners' gas-heating needs are forecast to continue through the end of February, latest indications from the National Oceanic and Atmospheric Administration show.
The weather-related demand cut comes as producers have pushed gas output to record highs, in part due to consistently strong U.S. benchmark oil prices above $100 a barrel. About one-third of the nation's gas output comes from wells that primarily pump oil, analysts said.
Rising output and weak demand means gas companies need to pull less gas from storage to meet consumer needs, leaving inventory levels about one-third higher than normal.
"Weather outlooks to the end of February are still showing warmer-than-norm conditions for the East Coast," said Matt Smith, analyst at Summit Energy. He said prices failed to follow through early Wednesday on Tuesday's 4.2% price jump as the market is "seemingly shifting focus onto a colossally bearish storage withdrawal" expected in weekly inventory data due out Thursday.
Natural-gas futures for March delivery on the New York Mercantile Exchange were down 2.4 cents at $2.508 per million British thermal units, after moving in a range of $2.49 to $2.587/mmBtu.
Jim Ritterbusch, president of Ritterbusch and Associates, said he believes the market already has priced-in expectations of a slim inventory drop of 120-130 billion cubic feet in data due at 10:30 a.m. EST Thursday from the Energy Information Administration. That would be far below the year-ago withdrawal of 230 bcf and the five-year average drop of 178 bcf.
"We still look for this market to grind lower near term with a test and possible violation of last month's 10-year lows still a high probability," he said. Prices settled at a 10-year low of $2.322/mmBtu on Jan. 19.
Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $2.54/mmBtu, according to IntercontinentalExchange, compared with Tuesday's average of $2.515. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $2.7825/mmBtu, compared with Tuesday's average of $2.798.
-By David Bird, Dow Jones Newswires; 212-416-2141; david.bird@dowjones.com
