WSJ: U.S. GAS: Futures Drop Further on Rise in Storage Level
--Inventories rise by 67 billion cubic feet
--Market watches Sandy for potential East Coast power outages
--Mixed outlooks for early November temperatures
By David Bird
NEW YORK--Losses deepened in natural-gas futures prices at mid-morning Thursday after U.S. weekly inventory data confirmed stockpiles are at record levels for this time of year.
The Energy Information Administration's weekly gas storage report showed inventories climbed by 67 billion cubic feet last week, slightly more than the 64 bcf expected in a Dow Jones Newswires survey but near other forecasts. The rise put stocks at 3.843 trillion cubic feet, a level that wasn't reached in 2011 until Nov. 16.
Traders and analysts said expected further gains in coming weeks mean stocks will hit records above 3.9 tcf heading into winter, adding pressure to prices.
Tim Evans, analyst at Citi Futures, said there was "no shock" value in the data, which was largely in line with the five-year average rise for the week. "With no surprise here, the tussle in the futures market will remain over what the appropriate valuation should be, given ample storage."
Stocks are 4.1% above a year ago, and 7% above the five-year average for the week.
Natural-gas futures for November delivery on the New York Mercantile Exchange were 5.5 cents lower at $3.395 per million British thermal units, after dropping to an intraday low of $3.36/mmBtu, the weakest level since Oct. 9. Prices are well below the 2012 peak of $3.617/mmBtu set Friday.
Gas in storage is expected to continue to post record highs for this time of year, while short-term demand worries are cropping up. Conflicting forecasts for early November question the extent of below-normal temperatures as winter draws near.
Matt Smith, analyst at Summit Energy, said some nuclear plants are coming back on line after maintenance, cutting what had been a short-term need for more gas for power generation.
Meanwhile, traders are watching the track of Hurricane Sandy, which is expected to move along the U.S. East Coast as a nor'easter early next week. Analysts said the storm, now heading to the Bahamas after hitting Haiti and Jamaica, could cause power outages that could limit demand. Inland gas fields would be unaffected by the storm, raising potential for further high increases in gas inventories in coming weeks.
Exceptionally strong demand from utilities slashed the overhang in gas storage from near 60% at the end of March to its current modest levels. But some analysts have raised concerns that prices near $3.50/mmBtu would send power generators back to burning now-cheaper coal, stamping out chances for a sustained price rally.
