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Natural gas burned by weather, no rebound seen

Natural gas half-heartedly rallied early Thursday on an unexpected decline in stockpiles, but then quickly fell back — as more warm weather descends on prime winter heating areas.

The East Coast this weekend is projected to see temperatures 15 to 20 degrees above normal and warm weather is also expected in the Midwest. Natural gas is down 8 percent so far this week with Thursday's more than 2 percent decline.

The Energy Information Administration reported Thursday that natural gas stockpiles fell by 76 billion cubic feet for the week ended Dec. 4. Analysts had expected under 65 billion cubic feet.

"It was a surprisingly high drawdown but the market's reaction to it was a bit muted," said Gene McGillian, analyst at Tradition Energy. "It just continues to point to the massive amount of gas we have in storage and the next three weeks of weather. We're supposed to see record warmth move in this weekend."

According to The Weather Channel, record temperatures could be recorded in 20 states as temperatures are in the 50s and 60s along the East Coast.

Natural gas futures initially rose as high as $2.09 per million British thermal units Thursday, but futures turned around and natural gas was just above $2 per million BTUs. Total stocks now stand at 3.88 trillion feet, up 514 billion from a year ago.

"The cash market is down below $1.90 and that points to a record amount of gas in the ground," said McGililan.

Jacob Meisel, chief meteorologist at Bespoke Weather Services, said there has been a slight change in the weather outlook. "There's more cold in the forecast. There's potential for a cooler shift in the 15-day range." Meisel said it is expected to be a record warm month, but the chance of colder weather in the midterm suggests cold for the West and the Midwest. The end of the month looks unseasonably warm for the Midwest.

"We're still above normal in the Northeast and the eastern half of the United States will average closer to above normal, but there are questions as to whether the South will see cooler trends than expected," Meisel said.

He said natural gas heating demand will likely be so low that the drawdowns will once more be below the five-year average.

"Natural gas is still in my mind hunting for a bottom. If we push into another month of this weather, that will be basically three bearish seasons in a row," said McGillian. "With production levels where they are, that's why we're going to be talking decade lows, and there's a possibility we're looking at that now."

The low this year for natural gas was in October when it hit $1.94 per mBtu.

"The three-year low would be back in 2012 when it was really warm and we got back to $1.90," said McGillian.