Will Natural Gas Producers Take Hit From Milder Weather?

oil_gasThe U.S. Energy Information Administration — or the EIA — reported Thursday that natural gas in underground storage declined by 94 billion cubic feet in the week ended March 29 to a level of 1,687 billion cubic feet. Stocks were 779 billion cubic feet less than the reserves reported at this time last year and 37 billion cubic feet below the five-year average of 1,724 billion cubic feet, suggesting to experts that natural gas production may take a hit as milder weather is expect to blunt demand in upcoming weeks.

On Wednesday, natural gas futures in New York fell by a greater percentage than they have in the previous six weeks due to forecasts for more moderate weather, which will likely reduce consumer demand for the fuel. However, ahead of Thursday’s EIA status report, futures edged higher for the first time in five trading sessions as analysts expected a large weekly drawdown from inventories, a prediction that added support for futures despite the forecasts for milder weather. A lower inventory typically bodes well for natural gas prices based on simple supply and demand economics.

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Lowered natural gas stockpiles are beginning to be somewhat of a trend. Last week’s EIA report showed that “the year-on-year storage deficit was the widest in records going back to 2005,” according to Bloomberg, and that “the surplus to the five-year average was the smallest since October 2011.” However, the lowered supply is not a guarantee for high prices over the long term. In a previous report, dated March 12, the EIA decreased its outlook for prices this year as consumption is expected to fall to 70.02 billion cubic feet per day from 70.31 billion…