Natural Gas Inventories in U.S. Getting Full UP

By Reg Curren

May 20 (Bloomberg) -- Natural gas was little changed amid forecasts that a government report tomorrow will show an above- average rise in U.S. supplies.

The Energy Department will probably say gas inventories rose 93 billion cubic feet in the week ended May 15, according to the median of 12 analyst estimates compiled by Bloomberg. The five-year average change is an increase of 90 billion. Gas storage is heading toward a record high before the fall, when heating-fuel demand begins to siphon off supplies.

“Natural gas is struggling because we’re well supplied,” said Michael Rose, a director of trading at Angus Jackson Inc., a brokerage in Fort Lauderdale, Florida. “You would have thought with the amount of speculators that had come into the market over the past several weeks that gas would be more bullish because of equities and the other energies.”

Natural gas for June delivery fell 0.6 cent to $3.908 per million British thermal units at 12:15 p.m. on the New York Mercantile Exchange. Gas has declined 30 percent this year.

The Energy Department is scheduled to release its storage report tomorrow at 10:30 a.m. in Washington. Supplies were 23 percent higher than the five-year average in last week’s report.

Shares of U.S. commodity producers rose as investors bet on the recession easing and factories ramping up. The Standard & Poor’s index of 500 stocks gained as much as 1.8 percent.

Companies injected 2.178 trillion cubic feet of gas into storage between April and November 2008, according to the Energy Department. A similar rebuilding of inventories this year would put stockpiles near 3.8 trillion cubic feet by Oct. 31, 8 percent above the record 3.545 trillion cubic feet in storage on Nov. 2, 2007.

Gas Demand

Industrial demand for gas may decline 8 percent this year because of the recession, the Energy Department said on May 12. Overall U.S. consumption is expected to contract 1.9 percent, outpacing reductions in output. Factory and power-plant consumption together accounts for 58 percent of U.S. gas use.

“Until the economy recovers, U.S. demand and even world demand, for that matter, can’t come back,” said Ryan Moe, a risk management consultant for FC Stone LLC in Minneapolis. “A lot of people aren’t sold yet that we’re ready to rally in natural gas.”

Overwhelming inventories and slack demand will weigh on the market for much of 2009, limiting the size of price moves to the up side, said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.

“It seems like people want to push it lower, but it’s getting too much support from the broader conditions,” he said. “Right now, all eyes are on storage and people are concerned about what happens if we bump up on those physical limits and what that will do to prices in the fall.”

Horwitz said prices probably won’t drop much further, having put in a low last month. Gas tumbled to $3.155 per million Btu on April 27 and rallied 45 percent to $4.575 on May 13 before stalling and heading lower again.

To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.