Natural Gas Down Again Tday

By Reg Curren

Aug. 6 (Bloomberg) -- Natural gas futures fell the most in two months after a government report showed a bigger-than- estimated increase in U.S. stockpiles.

Supplies in storage gained 66 billion cubic feet in the week ended July 31 to 3.089 trillion cubic feet, the Energy Department said. Analysts forecast a gain of 61 billion. The total was a record for late July, based on weekly department data going back to 1994.

“We have a lot of supply and it really weighs on the market,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The dollar is also a little firmer, so with the bearish storage report, natural gas is having a tough time hanging on.”

Natural gas for September delivery fell 29.9 cents, or 7.4 percent, to settle at $3.743 per million British thermal units at 2:58 p.m. on the New York Mercantile Exchange, the biggest one-day decline since June 3. Gas has dropped 33 percent this year.

A stronger dollar makes commodities less attractive to some investors, prompting them to sell holdings of natural gas, oil and metals.

Stockpiles were 19 percent higher than the five-year average last week. The average supply increase for the week over the past five years is 48 billion cubic feet, according to department data.

The shutting of a Gulf of Mexico pipeline by Enterprise Products Partners LP propelled prices higher yesterday, Flynn said. Gas has risen 2.5 percent this week.

“Even with these outages, it’s just another reminder that we have a lot of supply,” he said.

Stockpile Glut

A glut of gas in storage may persist longer than anticipated as some of the largest U.S. natural gas producers increase output.

XTO Energy Inc. and Devon Energy Corp., two of the five largest producers of U.S. gas, yesterday reported record output and smaller declines in earnings than analysts estimated. Anadarko Petroleum Corp., London-based BP Plc and Chesapeake Energy Corp. previously reported second-quarter output gains that helped them beat estimates.

“Collectively, we are seeing signs of production declining, but it’s very surprising it’s not coming down as fast as people thought it would,” said Fadel Gheit, director of oil and gas research at Oppenheimer & Co. in New York. “There is light at the end of the tunnel, though this tunnel isn’t a week long or a month long, it’s six months or it could be longer.”

A possible surge in imports of liquefied natural gas, or LNG, later this summer is also weighing on New York futures, Gheit said. Lower demand for the liquefied fuel in Asia, combined with increased output from the Middle East, may push shipments to the U.S., he said.

LNG Imports

LNG imports may rise 44 percent this year to 506 billion cubic feet as world production climbs, the Energy Department said in a forecast last month.

The National Oceanic and Atmospheric Administration today cut the number of Atlantic hurricanes it expects this year to a range of three to six of the storms.

In May, NOAA predicted a “near-normal” 2009 Atlantic season, with four to seven hurricanes, out of a range of nine to 14 named Atlantic storms it expected at the time. The agency now forecasts seven to 11 named storms.

The Atlantic has yet to produce a named storm this season, which runs from June 1 to Nov. 30. This is the longest the Atlantic has gone without a named storm since 1988.

A reduced risk of hurricanes lessens the chance that oil and gas production will be disrupted at offshore platforms in the Gulf of Mexico.

Demand Outlook

Demand for natural gas may lag behind the overall recovery in the U.S. economy next year, Biliana Pehlivanova and Michael Zenker, analysts at Barclays Capital said in a report on Aug. 4.

Barclays Capital forecasts the U.S. economy will expand 2.9 percent next year. Prospects for gas-intensive industries of chemicals, petroleum, coal products, primary metals and food industries, which account for 65 percent of demand, “are more muted,” the report said.

Industrial demand should rise 1.9 percent to 16.9 billion cubic feet a day in 2010, the analysts said.

Overall U.S. gas consumption may contract by 2.3 percent this year as the recession that began in December 2007 cuts demand, the Energy Department said on July 7. Gas demand at factories is forecast to tumble 8.2 percent.

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