Natural Gas Prices Fall to $8.09/mmBtu

SAN FRANCISCO (MarketWatch) -- Crude-oil futures closed with a loss of more than 2% Thursday, as a bigger-than-expected climb in U.S. natural-gas supplies renewed concerns about weaker energy demand, sending futures prices for natural gas down by almost 7%.
Traders also took profits after oil's more than 3% price gain in the past three winning sessions and after Reuters reported that the International Energy Agency and the U.S. government were ready to release oil from emergency reserves if Tropical Storm Gustav disrupted U.S. oil production.

Crude had climbed above $120 a barrel earlier Thursday on concerns about storms battering energy infrastructure in the Gulf of Mexico.
Crude for October delivery closed at $115.59 a barrel on the New York Mercantile Exchange, down $2.56, or 2.2%.

It was at $115.64 a barrel in electronic trading on Globex as of 3 p.m. EDT -- down from a high of $120.50.

Natural-gas prices led the losses in the energy sector Thursday, with October natural gas down 55.8 cents, or 6.5%, to close at $8.05 per million British thermal units on Nymex.
Natural-gas inventories rose by 102 billion cubic feet for the week ended Aug. 22, the Energy Department said Thursday. Analysts at Global Insight expected a climb of 86 billion.
The bigger-than-expected rise in natural-gas supplies is "reminding traders that demand for energy is weaker than expected," said Phil Flynn, a vice president at Alaron Trading.
Total natural-gas stocks now stand at 2.757 trillion cubic feet, down 200 billion cubic feet from the year-ago level but 71 billion cubic feet above the five-year average, the government data showed.
Traders are asking themselves whether Gustav will do more damage to supply or demand, said Flynn. "At least for now, they are betting on demand [destruction]."
"If demand for oil was strong right now, I think the markets would be more nervous," he said. But "the oil that is expected to be shut [from Gustav] is 1.2 million barrels -- which is about the same amount demand is off from a year ago."
Gustav nears hurricane strength
For now, traders seem to be taking a "quick chance at some profit taking before the weekend," said Neal Ryan, a managing partner at Ryan Oil & Gas Partners. But "I doubt many will be going into this long weekend short with markets closed on Monday and so much uncertainty regarding the hurricane in the Gulf."
"The storm this weekend is forecast to become a major hurricane, with maximum sustained winds of at least 111 miles per hour, according to AccuWeather.com. It said there are more than 4,0000 oil and gas installations in the Gulf and Katrina and Rita in 2005 destroyed 109 oil platforms and five drilling rigs.
Valero Energy (VLO:

VLO 35.02, 0.00, 0.0%) said it's closely monitoring Gustav and focusing "specific efforts" on its 250,000 barrels-per-day St. Charles refinery in Louisiana and 325,000 barrels-per-day Port Arthur refinery in Texas.

RDS.A 69.96, -0.05, -0.1%) began shutting in a few Gulf production well assets on Thursday morning, according to Reuters, which said the Gulf of home to about a quarter of U.S. oil production.
"We're really in a wait-and-see mode until a dependable track can be established on Saturday morning," said Ryan in emailed comments. "There is going to be a lot of jockeying in the energy pits as bets are going to be made while everyone puts on their amateur meteorologist hats."

Gustav picked up steam as it poured heavy rains on Jamaica Thursday, and residents along the Gulf Coast started readying for potential landfall. Read more.
The center of the storm at 2 p.m. EDT was about 40 miles east of Kingston, Jamaica's capital, packing winds near 70 miles per hour, according to the National Hurricane Center. A Category 1 hurricane has wind speeds of 74 to 95 mph.

"Given the thin trading conditions that are bound to set in over the next two days, we could see a rather substantial move higher, as both fresh buying and short-covering sets in ahead of the long weekend," said Edward Meir, an analyst at MF Global, in a research note.