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Natural gas pounded by supply, warm weather

Natural gas futures were clobbered Monday, falling nearly 10 percent as supplies rise toward record levels amid expectations that there will be a warm start to the winter.

The latest weather report showed mild weather across a wide section of the U.S. in the next two weeks, triggering a 9.8 percent plunge in the front-month natural gas contract. The futures ended the session at $2.06 MMBtu, a level last seen in 2012.

Analysts said adding to the volatility is the expiration of the November futures contract Wednesday.

"It's all coming out of the woodwork. The fundamental picture has been weak. It's shaking the market loose and overlapping this expiration cycle," said Gene McGillian, analyst at Tradition Energy.

"This could be a blow off bottom," said John Kilduff of Again Capital.

Kilduff said gas was being hit by expectations a record amount of natural gas will soon be in storage. Weekly data show gas storage at 3.81 trillion cubic feet, and the record is 3.929 trillion cubic feet in November 2012.

The Energy Information Agency predicts a peak of 3.956 trillion this November, said Kilduff, who projects it to reach more than 4 trillion. He said the most recent weather report shows above-normal temperatures for the eastern region, a significant user of heating fuels

The oversupply is also causing problems. "The producing region is at a record storage level," said McGillian. He said if more gas is forced into the spot market, the price will drop even more.

"A lot of the selling has been confined to that November contract. It's down 22 cents and January is only down around 11 cents. The expiration is one of the reasons we're down so much today. It's all of these things dovetailing together," he said.