Natural Gas Hits Low Price for mmBtu

Natural gas futures in New York fell to the lowest price in 13 months after a government report showed a bigger-than-average increase in U.S. supplies of the heating and factory fuel.

Stockpiles advanced 70 billion cubic feet in the week ended Oct. 17 to 3.347 trillion cubic feet, the Energy Department said today. Sufficient supplies in storage help utilities and large industrial consumers meet demand during the cold-weather season, when usage outstrips production. The average supply increase this time of year is 62 billion cubic feet.

“We’re sitting in a really great spot as far as the amount of natural gas we have coming into this heating season,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida.

Natural gas for November delivery fell 35.8 cents, or 5.3 percent, to settle at $6.419 per million British thermal units on the New York Mercantile Exchange, the lowest closing price since Sept. 25, 2007. Prices are down 5.1 percent from a year ago.

The surplus to the five-year average last week was 93 billion cubic feet, or 2.9 percent, after widening for four consecutive weeks. Supplies now exceed the five-year average of 3.327 trillion cubic feet that’s on hand at the start of the heating season in early November, when 52 percent of U.S. homes count on gas to keep them warm.

“Clearly, the market is well supplied,” George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York, said before the report. “There is some talk the U.S. winter may not be that cold in the consuming east regions.”

A worsening economic outlook in the U.S. is also dragging gas lower, Ellis said.

The number of Americans filing first-time claims for unemployment benefits increased last week, a sign the credit crisis is hurting employment, a Labor Department report showed.

A slowing economy would cut demand for gas from commercial and industrial companies, which accounted for 42 percent of U.S. consumption in 2007.

Energy producers have restored 66 percent of the 7.4 billion cubic feet of gas a day normally produced in the Gulf of Mexico, after hurricanes Ike and Gustav last month shut production platforms and pipelines, the U.S. Minerals Management Service said today.

“When you look back at the number of days we were down the supply is pretty amazing,” Rose said. “Once it’s all up and running there’s going to be a lot of gas” available this winter.

Supplies are also being bolstered by higher output from domestic onshore fields.

Stockpiles will probably reach 3.47 trillion cubic feet by the end of October, George Hopley, an analyst at Barclays Capital Inc. in New York, said in a report this week.

“A normal winter would result in a cumulative seasonal draw of 1.8 trillion cubic feet, leaving about 1.7 trillion in storage at the end of March,” Hopley said in his weekly gas outlook.

U.S. production is expected to increase 6.7 percent this year, particularly from fields in Texas and Wyoming, the Energy Department said in a monthly report on Oct. 7.