NEW YORK (Dow Jones)--Natural gas futures prices plunged to a fresh two-year low Wednesday, as traders brace for a government report expected to show another week of sluggish demand for gas.
Natural gas for January delivery settled down 14.3 cents, or 4.4%, to $3.136 a million British thermal units on the New York Mercantile Exchange. That's the lowest finish for gas since Sept. 11, 2009.
Futures pushed lower ahead of a weekly report that's expected to show a much smaller-than-normal draw in natural gas inventories, as mild temperatures across the U.S. continue to keep a lid on gas-fired heating demand.
"We're going through December without any sort of frigid conditions on the weather outlooks, and it's inspiring no real buying interest," said Matt Smith, analyst at Summit Energy in Louisville, Ky.
The Department of Energy report, due Thursday at 10:30 a.m. EST, is expected to show a draw in gas inventories of 94 billion cubic feet in the week ended Dec. 9, according to a survey of analysts and traders by Dow Jones Newswires.
That's well below the 142 billion cubic feet that is the five-year average decline for that week.
If the storage estimate is correct, inventories as of Dec. 9 will total 3.736 trillion cubic feet, about 13.3% above the five-year average and 4.5% above last year's level for the same week.
Wednesday's decline places front-month futures within striking distance of the $3/MMBtu psychological threshold. The last time front-month futures traded below $3/MMBtu was also in September 2009.
"There's not much support until the psychological $3, right above our technical target of $2.996," said Pax Saunders, analyst at Gelber & Associates, in a research report.
Mild weather and elevated domestic production has battered the gas market in recent months. Typically, futures rise this time of year as homes and businesses ramp up their use of heating fueled by natural gas. But the warm temperatures have delayed such a rally.
Several analysts say that rally is coming, but it's likely to be later than usual.
"For now, there's little reason to buy given the backdrop of these weak fundamentals," said Smith.