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US natural gas declined in thin trading on Wednesday as some gas production came back into service after being knocked offline by a powerful winter storm that sparked a record-shattering rally.
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February futures contract dropped 6.1%, or 42 cents, to $6.531 per million British thermal units as of 10:31 a.m. in New York. The contract expires Wednesday, leaving liquidity relatively low and exacerbating the impact on the front-month futures. The more actively traded March contract inched up 0.9% to $3.854 per million Btu.
Next-day physical delivery of gas at the US benchmark Henry Hub in Louisiana was trading at $7 per million Btu as of Wednesday, according to traders. This is way down from the $17 per million Btu that was trading on Tuesday.
US gas production was up by 2.5% to 102.1 billion cubic feet per day on Wednesday, as output that was interrupted by freezing pipelines and power losses to equipment during the storm pushed more than 15% of production offline over the weekend, according to BNEF data.
Gas jumped more than 124% in the six days through Tuesday, the biggest increase in data back to 1990, after traders and forecasters were caught off guard by widespread cold. Power prices in New York City and other major population centers also soared to record highs.
Frantic trading was exacerbated Tuesday by a glitch on the New York Mercantile Exchange, which hosts the most-active US gas contract. A circuit breaker tripped on the February contract during the settlement window, according to a spokesperson for CME Group Inc., which runs the exchange. The halt in trading lasted two minutes instead of the usual five seconds because of a technical issue, which has since been resolved, the spokesperson said.
Weather forecasts for the weeks ahead were somewhat mixed, shifting slightly colder in the eastern US for the first week of February while trending slightly warmer in the northern US the following week, according to the private forecaster Commodity Weather Group.
Gas inventories last week probably fell 239 billion cubic feet, based on median analyst estimates compiled by Bloomberg. That would be larger than the five-year-average withdrawal of 208 billion cubic feet for the week ended Jan. 23, and would leave inventories at 5.4% higher than the five-year average, according to the US Energy Information Administration. EIA reports weekly storage data at 10:30 a.m. New York time Thursday.
— With assistance from Dan Murtaugh and Ruth Liao
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