Are futures traders overlooking plunge in gas inventories?

Traders in natural gas futures, who have shrugged off the arctic chill as a blip, may be overlooking estimates for a record plunge in U.S. stockpiles of the heating fuel.

Preliminary data indicates gas inventories may drop by more than 300 billion cubic feet this week, according to three analyst forecasts compiled by Bloomberg News.

That would surpass the record draw of 288 billion cubic feet in the week ended Jan. 10, 2014.

The five-year average for the week ended Jan. 5 is a decline of 169 billion, according to Citi Futures.

As snow and winds bombarded Americans on the East Coast Thursday, gas futures for February delivery staged the biggest retreat in more than three weeks amid forecasts for a thaw later this month.

The futures slid even as spot gas for nextday delivery surged to 60 times the going rate, underscoring how rallies during the peak heatingdemand season have been cut short by flip-flopping weather outlooks and record production.

Demand is climbing as exports rise and power plants burn more gas, upsetting the norm and potentially cutting deeply into stockpiles, said Tim Evans, energy futures specialist at Citi Futures in New York.

“We could see a storage withdrawal that is off the charts in terms of what historically we have pulled from storage in a single week,” according to Evans, who is forecasting a decline of 312 billion. “This makes a very strong bullish statement” with the potential to widen the supply deficit versus the five-year average to 10.6 percent from 5.8 percent last week, he said.

Prices had rallied 16 percent over a four-day period to a one-month high of $3.056 on Jan. 2 before beginning their retreat as forecasts showed arctic air giving way to milder readings by late next week.

The U.S. Energy Information Administration will release its next storage report on Jan. 11. Stockpiles last week fell by 206 billion cubic feet to 3.126 trillion, above the five-year average decline of 99 billion for the period, EIA data released Thursday showed.

The next inventory report will reflect this week’s record demand. Total gas use in the lower forty-eight states for Dec. 30 through Thursday, which includes the first six days of the EIA reporting week, is up 19 percent from a week earlier, according to PointLogic Energy data that goes back to 2006.

Daily demand jumped to an all-time high of 143 billion cubic feet on Jan. 1.

Even as supplies tighten, money managers are becoming less bullish, boosting short positions in gas contracts.

“It’s just puzzling,” Evans said. “Fundamentally as the market becomes tighter physically, that should be reducing the downside risk and it should be expanding the upside potential.

“At some point, somebody’s going to figure out that February futures for Henry Hub delivery are a bargain.”