February natural gas futures continued to scout lower prices Wednesday as temperature forecasts continued to moderate and economy concerns ran rampant. The prompt-month contract put in a low of $8.090 before settling the day at $8.133, down 6.3 cents from Tuesday’s close.
“The natural gas market is processing the latest temperature forecasts, which continue to show intense cold in the six- to 10-day period but see somewhat less cold now in the 11- to 15-day outlook,” said Tim Evans, an analyst with Citigroup. “Less cold in the 11- to 15-day period constitutes a bearish warming trend, although there may still be enough heating demand to prevent a full reversal to the downside in price.”
The Commerce Department reported Tuesday that retail sales, a broad measure of consumer-driven economic strength, fell 0.4% in December. It was the first decline in six months. If that wasn’t enough, falling home prices, high energy prices and a tumbling stock market only helped to fuel the fears of economic sluggishness. The Dow Jones Industrial Average dropped 277 points Tuesday, and financial giant Citigroup reported a whopping loss of $9.83 billion or $1.99/share.
Natural gas traders see a direct link with a softening economic environment. “I think [Tuesday’s] correction was money coming off the table from the commodity side; that reflects losses made in the stock market. The Dow [was] down 277 [Tuesday] and people are looking to secure some profits,” said a New York floor trader.
The linkage between energy prices and economic strength was not lost on traders. Analysts suggest that natural gas demand growth is driven by increased power use, and a slowing economy would mean less demand for power.
“Demand growth in natural gas is driven by power generation, which is highly correlated” with economic growth, noted a Houston analyst. According to Energy Department figures, electric power generation accounts for 29% of gas demand, while industrial and commercial use combine for 43% of U.S. consumption.
Looking at the Energy Information Administration’s natural gas storage report for the week ended Jan. 11, storage watchers are expecting a much smaller withdrawal than the 171 Bcf reported for the previous week.
Golden, CO-based Bentek Energy said its flow model indicates a withdrawal of 60 Bcf, bringing stocks 8.8% below the five-year high (last year) and 6.6% above the five-year average. The research and analysis firm predicts a 34 Bcf withdrawal from the East region, a 22 Bcf pull from the West region and 4 Bcf removed from the Producing region. Last year there was an 84 Bcf withdrawal for the week.
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