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Natural-gas futures traded lower Thursday in the wake of a closely watched report on weekly U.S. inventory levels.
Natural gas for June delivery initially jumped following the report's release, then abruptly reversed course. Recently, the contract traded 3.2 cents, or 1.2%, lower at $2.433 per million British thermal units on the New York Mercantile Exchange.
U.S. natural-gas inventories rose 30 billion cubic feet last week, according to the Energy Information Administration.
The injection was smaller than the 32-bcf build expected by analysts surveyed by Dow Jones Newswires. Futures initially shot as high as $2.498 in the minutes after the 10:30 a.m. EDT report, then turned abruptly lower.
John Woods, an independent natural-gas trader on the Nymex floor, attributed the reversal to strong technical resistance around the $2.525 mark.
"This is the upper end of our range right here," he said, though he added that he doesn't expect prices to fall below $2 anytime soon.
"You'll probably trade into the mid-teens," he said.
The storage injection was smaller than usual for this time of year, which analysts have attributed to increased demand from power generators, opting to use natural gas in lieu of more expensive coal.
Still, overall inventories remain well above average levels after the mild winter squelched demand for natural gas used for heating. Stockpiles are 44.2% above last year's level and 44.5% above the five-year-average for this time of year.
Relatively modest additions to U.S. gas inventories in recent weeks--combined with long-awaited production cuts and increased demand from power plants--have helped to spur a sharp rally in natural gas over the last month.
In recent weeks, Chesapeake Energy Corp. (CHK), Devon Energy Corp. (DVN), Exxon Mobil Corp. (XOM) and others have disclosed output reductions, helping to shore up prices.
But the rally has left some traders wondering if prices have risen too quickly. Despite recent cuts, production remains near record highs and inventories are well above normal levels.
"We've seen the recent run but I think it's going to be short lived," said Tariq Zahir, head trader at commodities fund Tyche Capital, adding that any additional production cuts would help to send futures higher still.
-By Dan Strumpf, Dow Jones Newswires; 212-416-2818; email@example.com.