Tuesday, March 24, 2009

Natural Gas Prices Up & Rising

By Mario Parker

March 23 (Bloomberg) -- Natural gas futures rose for a third day in New York on speculation a government plan to lift the economy will prove successful, boosting demand for the industrial and power-plant fuel.

Gas, oil and stock markets gained after the Obama administration said it would finance as much as $1 trillion in purchases of distressed assets. Gas futures are down 68 percent from their 2008 high in July as the recession cut demand from factories and electricity generators.

“There’s a bit of a plan coming together to hopefully stabilize these financial institutions,” said Tom Orr, research director at Weeden & Co. LP in Greenwich, Connecticut. “The banks are higher and I think gas can work its way higher.”

Natural gas for April delivery rose 6.7 cents, or 1.6 percent, to settle at $4.294 per million British thermal units at 2:51 p.m. on the New York Mercantile Exchange. The futures have declined 24 percent this year.

Crude oil for May delivery gained $1.73 or 3.3 percent, to settle at $53.80 a barrel on the exchange. The Standard& Poor’s index of 500 stocks increased 5.2 percent to 808.30 at 3:01 p.m.

Natural gas futures also advanced as a 17 percent rally since March 18 prompted some investors to close out short positions, or bets on falling prices, said Carl Neill, an energy analyst at Risk Management Inc. in Chicago.

Large speculators increased their net-short positions in gas futures by 1 percent to 115,187 contracts in the week ended March 17, Commodity Futures Trading Commission data show.

“The general thinking in this market was overwhelmingly how far it will go down and not if it will go down,” Neill said. “Last week’s reversal caught some people short. There were too many people leaning on the short side of the boat.”

U.S. Rigs

Falling prices in the past year prompted some gas producers to limit supply in an attempt to buoy prices. The number of gas rigs operating in the U.S. has dropped 47 percent to 857 from a peak of 1,606 in September, according to Baker Hughes Inc.

“Just as demand for unleaded fuel had dropped and refiners did a stealth cutback, nat gas producers did the same thing” to support prices, said Michael Rose, a director of trading at Angus Jackson Inc., a brokerage in Fort Lauderdale, Florida.

Prices will average $6.84 per million Btu in the fourth quarter, according to a Bloomberg survey of 20 analysts. Gas may rise further in 2010 to average $7.50 for the year.

Demand for the fuel has been stifled by factory shutdowns and slowdowns during the recession. Output at factories, mines and utilities in the U.S. dropped 1.4 percent in February after a revised 1.9 percent decline in January, the Federal Reserve said March 16.

Nucor Corp., the largest U.S. steelmaker, revised its first-quarter forecast from a profit to a loss because of lower- than-expected demand. Nucor’s steel mills will run at about 43 percent of capacity in the first quarter, down from 48 percent in the previous period, the company said March 16.

U.S. steel plants operated at 41 percent of capacity in the week ended March 14, down from with 90 percent in the same period a year earlier, the American Iron and Steel Institute said March 16.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net.

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