Friday, June 19, 2009

Natural Gas Talk Heats Up as Supply Rises

NEW YORK -- Natural-gas futures finished lower Thursday after U.S. government data showed a bigger-than-expected build in gas inventories last week, adding to already-ample supplies as weak demand and mild weather continue to pressure prices.

Natural gas for July delivery on the New York Mercantile Exchange settled 16 cents lower, or 3.8%, at $4.093 a million British thermal units. The contract fell as low as $4.065 a million BTUs earlier in the day.

The U.S. Energy Information Administration reported Thursday an injection into storage of 114 billion cubic feet of gas for the week ended June 12, outpacing the 104 billion-cubic-foot build that analysts and traders had forecast in a Dow Jones Newswires survey.

The latest build brings the total amount of gas in storage to 2.557 trillion cubic feet, about 23% above the five-year average and 32% above last year's level as of June 12.

Supplies of gas have ballooned as U.S. onshore production, particularly from tight rock formations called shales, has boomed. This supply glut has developed just as the economic downturn has suppressed gas demand as large industrial consumers cut spending, driving gas futures prices down 70% from last July.

"Demand is still weak," said Larry Young of Infinity Futures in Chicago. "That's why we still have a bias to downside."

Producers have reined in drilling activity as prices have fallen, with the number of rigs drilling for gas in the U.S. falling by more than half since September, according to oil-field-services company Baker Hughes. Signs of a significant drop in output have yet to emerge, however.

Gas futures prices are getting little support from weather forecasts.

Hot weather in the Midwest over the next two weeks could be offset by cooler-than-normal temperatures in the Northeast over the same period, limiting the demand for additional gas-fired power for cooling, meteorologists said.

"Warm weather for the Northeast is not likely" for the next 10 to 15 days, Joe Bastardi, a meteorologist with, said in a note to clients Thursday.

The National Weather Service was predicting warmer-than-normal temperatures across the Midwest from June 23 to June 27, with below-normal temperatures along the East Coast.

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