Wednesday, August 26, 2009

Natural Gas Prices Dip Below $2.90/mmBTU

HOUSTON (Dow Jones)--Natural gas-futures ended lower as weather forecasts called for below-normal temperatures that could stifle cooling demand.

Natural gas for September delivery on the New York Mercantile Exchange settled 4.1 cents, or 1.40%, lower at $2.882 a million British thermal units. The front-month contract fell as low as $2.819/MMBtu in earlier trading.

Prices were under pressure from a mild weather outlook that analysts said would temper demand for natural gas-fired power for air conditioning. Traders were also adjusting their positions ahead of the Thursday expiration of September gas futures, analysts said.

"Our overall cooling demand for natural gas next week looks like it is less than it was a day ago," said Tim Evans, an analyst with Citi Futures Perspective in New York.

The National Weather Service forecast for Aug. 30 to Sept. 3 calls for below-normal temperatures in the Midwest and across parts of the northeastern and southeastern U.S.

Hot weather can help drive demand for natural gas and cut into storage injections - which are expected to push natural gas stocks to record levels before winter heating season begins.

Natural gas in U.S. storage for the week ended Aug. 14 stood at 3.204 trillion cubic feet - 21% higher than last year and 19% above the five-year average storage level.

Storage levels could even test capacity this fall, despite the brisk pullback in U.S. drilling activity brought about by lower natural gas prices, analysts said.

The price of natural gas has fallen more than 75% since hitting highs last summer above $13/MMBtu as U.S. gas production soared and the economic downturn undermined demand for the fuel. In response to lower prices, natural gas producers let rigs fall idle to curb the flow of gas into the marketplace.

The number of rigs drilling for natural gas has fallen by more than half since last September, when the gas rig count peaked at 1,606 rigs. However, natural gas output has not yet shown marked declines.

"Near brimming storage will cause more production to be shut in or widespread flaring, unless or until a stronger economic recovery kicks up industrial demand, a sustained heat wave slows inventory builds or a series of summer storms disrupts supplies," Mike Fitzpatrick, an analyst with MF Global in New York, wrote in a note to clients Tuesday.

The National Hurricane Center is tracking a tropical disturbance about 325 miles north-northeast of San Juan, Puerto Rico. The weather system has a greater than 50% chance of tropical cyclone formation.

However, it was not expected Tuesday to go on and threaten energy infrastructure in the U.S. Gulf of Mexico, private forecasters said.

The energy-rich U.S. Gulf accounts for about 11% of domestic natural gas output.

Nymex Sep $2.882 -4.1c
Nymex Oct $3.288 -4.9c
Nymex Nov $4.261 -4.6c

Henry Hub $2.83-$2.91 $2.65-$2.80
Transco 65 $2.85-$2.98 $2.67-$2.84
Tex East M3 $3.20-$3.32 $2.95-$3.30
Transco Z6 $3.21-$3.37 $2.99-$3.33
SoCal $2.73-$2.89 $2.62-$2.74
El Paso Perm $2.65-$2.80 $2.58-$2.72
El Paso SJ $2.62-$2.70 $2.45-$2.52
Waha $2.72-$2.83 $2.60-$2.78
Katy $2.76-$2.85 $2.61-$2.79

-By Jason Womack, Dow Jones Newswires; 713-547-9201;

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