Thursday, September 24, 2009

Natural Gas Prices Up for October 2009

By Christine Buurma

NEW YORK (Dow Jones)--Natural gas futures extended gains Wednesday, rising as traders continued to buy back previously sold contracts ahead of the winter heating season.

Natural gas for October delivery on the New York Mercantile Exchange settled 25.1 cents higher, or 6.95%, at $3.86 a million British thermal units after reaching a high of $3.935/MmBtu in combined electronic and floor trade earlier in the day. The intraday high was the highest price since early August.

The approach of colder weather has prompted a flurry of book-squaring among gas traders, who were betting heavily on falling prices over the summer.

"We've had a pretty sizable short-covering rally over the past few weeks," said Cameron Horwitz, an analyst with SunTrust Robinson Humphrey. "Some of the early winter forecasts that have been thrown out there are looking for some pretty cold weather. If you do get very cold weather at a time when we're only running plus or minus 700 rigs, we're going to have a problem."

Long-range winter weather forecasts remain mixed, however, with some forecasters predicting bitterly cold temperatures in the major gas-consuming regions and others expecting generally mild weather.

Ample gas supplies continue to place downward pressure on prices. Analysts and traders expect government data scheduled for release on Thursday to show an average injection into natural gas storage last week as production curtailments weigh against mild weather.

The U.S. Energy Information Administration is expected to report that 69 billion cubic feet of gas were added to storage during the week ended Sept. 18, according to the average prediction of 16 analysts and traders in a Dow Jones Newswires survey.

The storage estimate surpasses last year's 54 bcf build in storage but matches the five-year average injection. If analysts' predictions are correct, inventories as of Sept. 18 will total 3.527 trillion cubic feet, 16% above the five-year average and 16.9% above last year's level.

Gas producers have scaled back output over the past several months in response to tumbling prices. The number of gas rigs in use peaked at 1,606 in September 2008, and was most recently at 705 rigs. Meanwhile, ample inventories are forcing involuntary production shut-ins as storage facilities near full capacity. Analysts predict that inventories may reach capacity, an estimated 3.889 tcf, before the end of the winter heating season.

"Are injections smaller due to lower production or are injections smaller due to a lack of storage availability?" writes Kent Bayazitoglu, an analyst with Gelber & Associates, in a note to clients. "Both factors are in play as the market heads to record storage levels."

- By Christine Buurma, Dow Jones Newswires; 212-416-2143;

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