U.S. natural gas futures ticked down Thursday as traders shrugged off a lower-than-expected domestic supply growth and storm-related production shutdowns in the Gulf of Mexico.
Natural gas for October delivery settled 0.4 cent, or 0.1% lower, at $4.05 a million British thermal units on the New York Mercantile Exchange.
The benchmark contract traded in a wide range, falling as low as $3.97/MMBtu and rising to $4.13/MMBtu, a three week high. It had risen as high as 9.3% from six-month low reached Tuesday.
"A 35-cent swing in three sessions suggest that short covering perhaps pushed too much upside too fast," Pax Saunders, an analyst with Gelber & Associates, wrote in a note to clients.
After starting out strong in early trading, prices fell after the Energy Information Administration said U.S. natural-gas stockpiles rose by 55 billion cubic feet last week, less than the 62 bcf predicted by traders and analysts surveyed by Dow Jones Newswires.
Futures often climb if the EIA reports a smaller-than-expected injection. The build topped last year's 52-bcf injection but fell short of the five-year average build of 60-bcf.
The smaller-than-expected increase will still provide some short-term support for prices, Citi Futures Perspective analyst Tim Evans said, even as traders retake bearish stances.
Inventories as of Aug. 26 stood at 2.961 trillion cubic feet, 4.4% below the five-year average, and 2% below 2010 levels.
The storm forming in the central Gulf of Mexico may limit injections into storage this week as it has prompted several major producers, including BP PLC (BP, BP.LN), Anadarko Petroleum Corp. (APC) and Exxon Mobile Corp. (XOM), to shut in production.
As of Thursday afternoon, about 2.4% of the Gulf's natural gas production had been shut in because of the storm, according to the Bureau of Ocean Energy Management, Regulation and Enforcement. The Gulf accounts for about 7.4% of total U.S. output.
PFG Best analyst Phil Flynn said traders had mostly priced in the storm's effects by Wednesday. "People that were buying for the storm ahead of time now are taking their profits before the weekend," he said.
The Hurricane Center on Thursday said the trough of low pressure over the central Gulf now has an 80% chance of developing into a tropical cyclone in the next 48 hours.
Along with the production outages, BP said Thursday that its Destin pipeline, which carries up to 1.2 billion cubic feet of Gulf gas to nine interstate pipelines, remained inoperable. The pipeline was originally shut down Wednesday after problems at a Mississippi compressor station.