Natural gas falls as weather forecasts fluctuate

Natural gas falls as weather forecasts fluctuate

BY JERRY A. DICOLO

NEW YORK -- Natural gas futures fell Tuesday as temperature forecasts offered mixed signals about gas-fired heating demand.

Natural gas for March delivery on the New York Mercantile Exchange settled 4.9 cents, or 1.5%, lower, at $3.230/MMBtu.

Investors were keeping close watch on weather outlooks, which showed fluctuating temperatures across the U.S. for the next two weeks.

Private forecaster WSI Energycast said Tuesday that cooler than normal temperatures are expected to move across the eastern U.S. over the next week, followed by a period of milder weather and then another temperature dip.

"What we're really seeing is a lack of sustained calls for cold weather and heating demand," said Gene McGillian, a broker and analyst at Tradition Energy.

In the winter, weather is typically the biggest factor in natural gas prices, because cold temperatures raise demand for heating by homes and businesses. Roughly half of U.S. homes use gas-fired heating, while many more use electric heat powered by gas-fired utilities.

The temperature swings have traders on edge and have led to prices holding just above the 200-day moving average, a key technical level of support.

Jim Ritterbusch, head of oil-trading advisor Ritterbusch and Associates, said in a research report Tuesday that the fluctuating forecasts are restraining big price swings, while the coming end to the high-demand winter season is starting to diminish the importance of the predictions.

In early January, weekly withdrawals from storage are typically much larger than later in the winter. In February and March, even temperatures well below normal will often not lead to sharp stockpile declines.

"The temperature factor will continue to diminish in importance," he said.

For the past month, natural gas prices have held between $3.20 and $3.50/MMBtu. While temperatures have fallen, in recent weeks drops in U.S. stockpile levels have come in below analyst estimates.

U.S. gas inventories stand at 2.684 Tcf, according to the Energy Department, 15% above the five-year average for this time of year.

Mr. McGillian said it now looks likely that stockpiles will end the season above 2 Tcf, a level that most investors and traders take as a sign of robust supplies.

Dow Jones Newswires