Saturday, October 11, 2008

Natural Gas Prices at $6.53/mmBtu on Economic News

By Mario Parker

Oct. 10 (Bloomberg) -- Natural gas in New York dropped as investors fled commodities amid concern that the global financial crisis will slash energy usage.

A declining economy would reduce demand from commercial and industrial users of gas, which accounted for 9.64 trillion cubic feet, or 42 percent, of consumption in the U.S. in 2007. Oil in New York had its biggest weekly decline since March 2003.

``The credit market has been such that there is massive liquidation from commodities,'' said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. ``There's panic and widespread pandemonium.''

Natural gas for November delivery fell 29 cents, or 4.3 percent, to settle at $6.535 per million British thermal units on the New York Mercantile Exchange. Prices have tumbled 52 percent from a 30-month intraday high of $13.694 on July 3. Futures are the lowest since Sept. 26, 2007. Natural gas had its worst week since Aug. 8, when it plummeted 12.2 percent.

``I've been in this business for 25 years, seen 1987 and 2002 and this is worse,'' Rose said. ``I've never seen so much money being shredded in my life.''

The S&P 500 fell 10.7 points, or 1.2 percent to 899.32, capping it worst week since 1933. The Dow Jones Industrial Average lost 128 points, or 1.5 percent, to 8,451.19. The Nasdaq Composite Index added 4.39 points to 1,649.51.

The Reuters/Jeffries CRB Index of 19 commodities tumbled the most ever. The CRB fell 20.64, or 6.7 percent, to 289.89. The index has slumped 39 percent from a record on July 3.

Global Economy

``Right now it's impossible to separate ourselves from what's happening economically across the world,'' said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. ``People are worried that demand is just not going to be there.''

Natural gas inventories also are adequate heading into winter, Florer said.

Inventories gained 88 billion cubic feet in the week ended Oct. 3 to 3.198 trillion cubic feet, the U.S. Energy Department said yesterday. Analysts forecast an 87 billion-cubic-foot advance. The average increase this time of year is 69 billion.

The increase kept supplies on a pace to be above the five- year average of 3.327 trillion cubic feet at next month's start of the peak-demand heating season. The surplus to the average widened to 69 billion, or 2.2 percent, from 50 billion, or 1.6 percent a week earlier.

``All momentum and all signs point lower,'' Florer said. ``It was definitely a bearish number.''

Crude Oil

Crude oil for November delivery plunged $8.89, or 10.3 percent, to settle at $77.70 a barrel in New York. Futures touched $77.09, the lowest since Sept. 11, 2007.

``One of the largest open interest segments was hedge funds,'' said Ed Kennedy, a trader with Commercial Brokerage Corp. in Miami. ``Now redemptions are huge in both mutual and hedge funds. They have to get out of positions because they need the money.''

Natural gas prices are slumping even as the heating season approaches. The cold-weather season runs from November to March when demand for natural gas outstrips production, requiring utilities and other large users to draw on supplies put into storage during the summer.

``In times of economic stress people will lower their temperatures a little bit, therefore lowering demand,'' said George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York.

Ellis said the slowing economy will weigh on natural gas demand for those who rely on the fuel for manufacturing.

President George W. Bush today said the U.S. government will ``aggressively'' move to help stabilize markets and resolve the financial crisis.

``Unfortunately, right now I don't think there's a lot of confidence in elected officials, from the investor community,'' Ellis said.

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