THE WALL STREET JOURNAL

Natural-Gas Prices Jump as Oversupply Evaporates

By Timothy Puko / Updated June 25, 2015 7:56 p.m. ET

 

Storage levels grew by 75 billion cubic feet, 13% below the
five-year average

 

 

Natural-gas prices rose, as a smaller-than-average increase in the nation’s stockpiles bolstered
the view that a glut is easing.


Gas prices have been resilient all month, defying widespread expectations that heavy supply
would keep hurting prices. A hot spell spreading across the country has raised demand for gasfired
power just as production cuts and pipelines outages began to choke back supply.


The trend has been visible all month in shrinking weekly surpluses reported by the U.S. Energy
Information Administration. Stockpiles additions hit a record of 132 billion cubic feet in the last
week of May and have since fallen three weeks in a row.


Prices are up 7.9% for the month so far, roughly along that same time period. Prices for the
front-month July contract on Thursday rose to the highest point in a week, settling up 9.1 cents,
or 3.3%, at $2.850 a million British thermal units on the New York Mercantile Exchange.


EIA on Thursday said storage levels grew by just 75 billion cubic feet, three billion cubic feet
less than expectations and 13% below the five-year average, in the week ended June 19. It was
the smallest storage addition in more than two months and suggests the market has come back
into balance after a long period of booming supply repeatedly outpacing demand.


Power plants played a big role in the balancing act, burning more gas as the weather gets hotter
and people use air conditioners, analysts said. One measure of that demand, cooling degree days,
was 43% above the 30-year average for last week, according to Simmons & Co. International.


“More demand from here means [the] gas price needs to move higher to keep market balanced,”
said Houston investment bank Tudor, Pickering, Holt & Co.


The coasts, especially in the Northwest, could see persistent heat. A 1.2-gigawatt nuclear-power
plant is down in Washington and hydropower generation is already low on the West Coast, likely
bolstering gas demand and helping push prices up for at least the next week, analysts at Energy
Aspects said in a report.


Energy Aspects warned prices could quickly retreat if they get too high and become much more
expensive than coal. But there is still room to at least get past $2.90 a million BTUs, said John
Woods, president of JJ Woods Associates and a Nymex trader.


“You go in with one foot in pool, as a bull,” Mr. Woods said.


The biggest risk is that the recent balance in the market is only temporary, said Eric Crittenden,
chief investment officer at Longboard Asset Management in Phoenix. Its Longboard Managed
Futures Strategy Fund, a mutual fund with $270 million, already posted 11% gains this year in
part from bearish gas bets, and Mr. Crittenden is positioned again for prices to fall in September.
“I know the inventories came in less than expected, but it’s not enough to turn the market
around,” he said.


Oil and gas companies have, however, made major cutbacks, leading several investors think the
market has shifted. Talara Capital Management, which oversees about $400 million, has been
making small additions to its investments in exploration and production companies in recent
weeks in the expectation that commodity prices will eventually rise, said David Zusman, chief
investment officer.


“The supplies are going to have a very significant reduction over the course of the next 12
months, and you’re going to pick up some demand as well,” he said. “When you put all that
together, I think you’ve got an inflection point that is already started.”


Write to Timothy Puko at tim.puko@wsj.com


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