Natural Gas Falls to Six-Year Low on Ample U.S. Inventories
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By Reg Curren
April 24 (Bloomberg) -- Natural gas fell to the lowest price in more than six years in New York on concern supplies of the heating and industrial fuel will overwhelm demand this year.
Gas futures have plunged 41 percent since the end of December as orders for goods at U.S. factories decline, prompting companies including General Motors Corp. to shut down production. Industrial and power plant gas consumption each account for 29 percent of U.S. demand.
“Until demand picks up and domestic gas production starts to come down more rapidly we’re going to be in this situation,” said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. “We’re going to have above-average storage levels for the rest of the year.”
Natural gas for May delivery fell 11.2 cents, or 3.3 percent, to settle at $3.297 per million British thermal units at 3:03 p.m. on the New York Mercantile Exchange, the lowest closing price since Sept. 11, 2002.
Prices dropped 12 percent this week, the biggest decline since the week ended March 27.
Orders for U.S.-made durable goods fell 0.8 percent in March, the Commerce Department said today in Washington. The government revised February figures to show a 2.1 percent gain in orders, smaller than previously reported.
Gas consumption by factories may drop 7.4 percent this year as the recession cuts demand, the Energy Department said in a report on April 14.
Stockpiles of gas increased 46 billion cubic feet in the week ended April 17 to 1.741 trillion cubic feet, the department said yesterday. Supplies were 23 percent higher than the five- year average.
Stockpile Outlook
“We’re heading into a situation we’ve never been in before” as supplies will press available storage capacity, Hanold said.
Hanold expects inventories to build to a record 3.63 trillion cubic feet by Oct. 31 to start the peak winter-demand period. The current record is 3.545 trillion cubic feet reached on Nov. 2, 2007.
“Commercial and industrial demand for energy will remain weak through the summer,” Stephen Schork, president of the Schork Group Inc., an energy markets consulting company in Villanova, Pennsylvania, said in a note today. “Demand destruction will still outpace supply destruction through this summer and into next winter.”
A move below $3.38 per million Btu indicates prices will probably head to $3.323, Schork said. Prices below $3.323 may prompt offers down to $3.207 per million Btu.
The number of onshore gas rigs seeking new deposits in the U.S. has dropped 54 percent since September as prices collapsed, data published by Baker Hughes Inc. showed.
Gas rigs fell by 18, or 2.4 percent, to 742 this week, the lowest since the week ended Feb. 7, 2003, The count is down from a peak of 1,606 on Sept. 12.
Factory Demand
Industrial gas use this year will probably fall to about 16.8 billion cubic feet a day, the Energy Department said in its monthly Short-Term Energy Outlook on April 14. The estimate was down from 17.1 billion in the March outlook. Total gas demand will fall 1.8 percent, the April report showed.
“I keep thinking we’re going to get a bargain-hunting bounce, but we keep trickling lower,” said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. “The fundamentals are terrible. We have record levels of gas and no sign that demand is going to come back online anytime soon.”
The economy probably shrank 5 percent in the first three months of this year, the median estimate of 30 economists surveyed by Bloomberg News.
“There’s not a whole lot of love out here for the bulls,” said Florer. “I am a seller of rallies until I’m shown otherwise.”
To contact the reporters on this story: Reg Curren in Calgary at [email protected].
Last Updated: April 24, 2009 15:17 EDT
Share | Email | Print | A A A
By Reg Curren
April 24 (Bloomberg) -- Natural gas fell to the lowest price in more than six years in New York on concern supplies of the heating and industrial fuel will overwhelm demand this year.
Gas futures have plunged 41 percent since the end of December as orders for goods at U.S. factories decline, prompting companies including General Motors Corp. to shut down production. Industrial and power plant gas consumption each account for 29 percent of U.S. demand.
“Until demand picks up and domestic gas production starts to come down more rapidly we’re going to be in this situation,” said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. “We’re going to have above-average storage levels for the rest of the year.”
Natural gas for May delivery fell 11.2 cents, or 3.3 percent, to settle at $3.297 per million British thermal units at 3:03 p.m. on the New York Mercantile Exchange, the lowest closing price since Sept. 11, 2002.
Prices dropped 12 percent this week, the biggest decline since the week ended March 27.
Orders for U.S.-made durable goods fell 0.8 percent in March, the Commerce Department said today in Washington. The government revised February figures to show a 2.1 percent gain in orders, smaller than previously reported.
Gas consumption by factories may drop 7.4 percent this year as the recession cuts demand, the Energy Department said in a report on April 14.
Stockpiles of gas increased 46 billion cubic feet in the week ended April 17 to 1.741 trillion cubic feet, the department said yesterday. Supplies were 23 percent higher than the five- year average.
Stockpile Outlook
“We’re heading into a situation we’ve never been in before” as supplies will press available storage capacity, Hanold said.
Hanold expects inventories to build to a record 3.63 trillion cubic feet by Oct. 31 to start the peak winter-demand period. The current record is 3.545 trillion cubic feet reached on Nov. 2, 2007.
“Commercial and industrial demand for energy will remain weak through the summer,” Stephen Schork, president of the Schork Group Inc., an energy markets consulting company in Villanova, Pennsylvania, said in a note today. “Demand destruction will still outpace supply destruction through this summer and into next winter.”
A move below $3.38 per million Btu indicates prices will probably head to $3.323, Schork said. Prices below $3.323 may prompt offers down to $3.207 per million Btu.
The number of onshore gas rigs seeking new deposits in the U.S. has dropped 54 percent since September as prices collapsed, data published by Baker Hughes Inc. showed.
Gas rigs fell by 18, or 2.4 percent, to 742 this week, the lowest since the week ended Feb. 7, 2003, The count is down from a peak of 1,606 on Sept. 12.
Factory Demand
Industrial gas use this year will probably fall to about 16.8 billion cubic feet a day, the Energy Department said in its monthly Short-Term Energy Outlook on April 14. The estimate was down from 17.1 billion in the March outlook. Total gas demand will fall 1.8 percent, the April report showed.
“I keep thinking we’re going to get a bargain-hunting bounce, but we keep trickling lower,” said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. “The fundamentals are terrible. We have record levels of gas and no sign that demand is going to come back online anytime soon.”
The economy probably shrank 5 percent in the first three months of this year, the median estimate of 30 economists surveyed by Bloomberg News.
“There’s not a whole lot of love out here for the bulls,” said Florer. “I am a seller of rallies until I’m shown otherwise.”
To contact the reporters on this story: Reg Curren in Calgary at [email protected].
Last Updated: April 24, 2009 15:17 EDT
