By Matt Day Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Natural gas prices rose Friday as forecasts for colder-than-normal temperatures in January lifted heating demand expectations.
Futures are poised to end the year with a whimper. Natural gas for February delivery recently traded up 4.3 cents, or 1%, at $4.381 per million British thermal units on the New York Mercantile Exchange.
If natural gas settles around this level, it will mark the lowest end-of-year settlement for the heating fuel since 2001. A persistent supply overhang has kept a lid on the market, even as bitter cold in parts of the U.S. this month increased heating needs.
Unlike other industrial commodities such as copper and oil, which were boosted in 2010 by rising demand from emerging markets, U.S. natural gas trading continues to be largely insulated from global trends. The U.S. and Canada have no capacity to export significant amounts of natural gas. The North American gas market showed a muted reaction to the worries about high European debt levels or global monetary policy that roiled other markets during the year.
With natural gas prices well below their record above $15/MMbtu in the wake of hurricanes Katrina and Rita, the commodity could receive a modest boost in 2011 should investors continue to favor physical assets.
"This is a cheap commodity," said John Woods, a trader with JJ Woods Associates. Natural gas is less likely to show as steep declines as are possible in commodities that surged in value in 2010, he said. "Are you going to get into gold at $1,300 [an ounce] or oil at $90 [a barrel], or are you going to get into gas?"
Earlier Friday, benchmark Nymex natural gas futures rose as high as $4.417/MMBtu, a two-week intraday high.
Colder-than-normal temperatures are seen across the U.S. and Western Canada Jan. 10-14, meteorologists with private forecaster Commodity Weather Group said, likely leading to an increase in gas-heating demand.
Gas futures have been bound in a range between about $3.90/MMBtu and $4.40/MMBtu in recent weeks, supported when forecasts called for colder weather, but with gains limited as traders cash out to profit from small moves amid the oversupply.
Rising gas production from North American shale formations overwhelmed demand for much of the year, despite the increase in the need for gas-fired electricity to cool homes and businesses during a record-hot summer. Natural gas prices fell by 22% on the year through Thursday's close.
U.S. inventories rose to a record high of 3.843 trillion cubic feet in November, and have since fallen to 3.232 tcf as of Dec. 24 with the onset of winter heating demand. But the Energy Information Administration forecasts that more than 1.8 tcf will remain in storage at the end of winter's withdrawal season in late March, which would be a record high for that time of year.
Other analysts say that the supply overhang may continue to bind the market, with declines toward $3/MMBtu possible unless gas producers move to stem production growth.
-By Matt Day, Dow Jones Newswires; 212-416-4986; matt.day@dowjones.com
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