By Timothy Puko
Natural gas closed at its lowest price in more than two years
after federal data showed U.S. storage levels fell far less than
expected last week.
Storage levels shrank by 94 billion cubic feet in the week ended
Jan. 23, the U.S. Energy Information Administration said. That 17
bcf less than the 111-bcf average of 20 forecasters surveyed by The
Wall Street Journal, none of whom predicted such a small drain.
Prices sank as soon as the data came out. The front-month March
contract settled down 12.3 cents, or 4.3%, at $2.719 a million
British thermal units on the New York Mercantile Exchange. This is
the lowest front-month settlement since Sept. 7, 2012, when gas
fell to $2.682/mmBtu.
The drain was 44% lower than the five-year average for that week
of the year. That is another reminder of how severely oversupplied
the market is, said Stephen Smith, an energy consultant based in
Natchez, Miss. UBS AG cut its price forecast for gas earlier this
week, saying the market is oversupplied by about 2.5 bcf a day.
"You might get weather situations that make it...look like a
balanced market," Mr. Smith said. "The truth is, underlying this
whole thing, you can't grow production (at this) rate and not be
oversupplied."
The drain brought storage levels to 2.5 trillion cubic feet, 15%
more than a year ago and 3% below the five-year average.
The fall to 2012 prices is significant, said Teri Viswanath, a
natural-gas strategist at BNP Paribas SA in New York. After a mild
winter that year, the strong supply coming from the U.S. shale gas
boom crashed the market, sending prices below $2/mmBtu.
Milder weather reports also came in in the afternoon, suggesting
softer demand for gas heat in the coming weeks, Ms. Viswanath
added. She said early pipeline data suggests a 125-bcf withdrawal
for next week's storage update, and that would be a quarter lower
than the five-year average for the week, according to EIA data.
"The question is whether this will lead to the same precipitous
collapse that we had" in 2012, Ms. Viswanath said. "This is a real
problem."
Write to Timothy Puko at tim.puko@wsj.com
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