By Reg Curren
March 18 (Bloomberg) -- Natural gas futures dropped to the lowest price in more than five months as a surplus of the fuel gained following a smaller-than-forecast stockpile decline.
Inventories shrank 11 billion cubic feet in the week ended March 12 to 1.615 trillion cubic feet, the Energy Department report today showed. Analysts forecast a decline of 30 billion. The surplus to the five-year average widened to 4.7 percent from 1.2 percent as the peak-demand heating season draws to a close.
“It’s all postured negatively now and for good reason,” said Tom Orr, research director at Weeden & Co., a brokerage in Greenwich, Connecticut. “People believe the fundamentals will worsen and they’re erring on the side of a rising rig count, better efficiencies and improved overall production.”
Natural gas for April delivery fell 21.8 cents, or 5.1 percent, to $4.085 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Sept. 28 and the biggest one-day drop since Jan. 11. The futures have declined 27 percent this year.
Gas production may increase this year as the number of rigs searching for the fuel has risen 39 percent from a seven-year low in July, Baker Hughes Inc. data show.
“Companies are finding cheaper ways to produce gas and finding more areas to produce it,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “They’ve created an environment for low prices. They’re really good at what they do.”
Gas Companies
Utilities and storage companies typically add gas to stockpiles from early April through October to have enough on hand for the winter months.
“We’ll get going here pretty soon on the refill season,” said Phil Flynn, vice president of research at PFGBest in Chicago. “In the immediate term, it’s springtime, there’s weak demand.”
Gas producers including Chesapeake Energy Corp. and XTO Energy Inc., which is being acquired by Exxon Mobil Corp., are using new drilling techniques to unlock gas trapped in shale formations.
U.S. production reached an all-time high of 26.3 trillion cubic feet in 2009, up 2.2 percent from the previous year, as companies exploited deposits in Texas, Louisiana and the Northeast, department data show.
Shares of Chesapeake Energy, Anadarko Petroleum Corp., and Cabot Oil and Gas Corp. were downgraded today to “hold” from “buy” by Eric Hagen, an analyst at Lazard Capital Markets in New York.
Increased output in the U.S. market came as demand was depressed by the worst recession since the 1930s.
Industrial Fuel
Deliveries of gas to industrial consumers fell 512 billion cubic feet, or 7.7 percent, in 2009 from the previous year, according to the Energy Department.
Weak demand at factories, chemical plants and steel mills, coupled with the increased output, pushed inventories to a record 3.837 trillion cubic feet at the end of November.
“We’re looking at above-normal temperatures in the six-to- 10-day zone,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consultant. A storage increase may be reported next week that could “set the stage for a stronger-than-normal injection season as production gains begin to kick in.”
Milder-than-normal weather will be the dominant trend from now through the end of the month, according to Commodity Weather Group of Bethesda, Maryland. About 52 percent of U.S. households rely on natural gas for heating.
High temperatures in Chicago are expected to be near 60 degrees (16 Celsius) today and tomorrow, according to the National Weather Service. Lows will near 42 degrees. The typical high is about 48 degrees and minimum is 30.
Henry Hub
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana fell 7.21 cents, or 1.7 percent, to $4.1939 per million Btu, according to data compiled by Bloomberg.
Gas futures volume in electronic trading on the Nymex was 316,296 contracts as of 3:24 p.m., compared with a three-month daily average of 218,000. Volume totaled 178,204 yesterday. Open interest was 854,006 contracts, compared with the three-month average of 780,000. The exchange has a one-business-day delay in reporting open interest and full volume data.
Source: http://www.businessweek.com/news/2010-03-18/natural-gas-extends-decline-after-u-s-inventory-report.html
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