Wednesday, October 21, 2009

Natural Gas Prices Breaks $5.00/MMBtu on Monday

By Reg Curren

Oct. 20 (Bloomberg) -- Natural gas advanced to a nine-month high in New York as Caterpillar Inc. topped third-quarter profit estimates and said there were signs of an economic recovery.

Fuel use may increase as Caterpillar, the world’s biggest maker of bulldozers and excavators, said industrial production has improved and forecast a 3 percent expansion in the world economy next year. Demand for gas from factories, steel mills and chemical plants accounts for 29 percent of U.S. consumption.

“Our expectation is that as the recession continues to be behind us and the economy improves, U.S. gas demand will come roaring back,” John Hattenberger, president of OAO Gazprom’s U.S. energy trading unit, said in an interview from Houston on Bloomberg Television. Gazprom, based in Moscow, is the world’s largest natural-gas producer.

Gas for November delivery rose 32.6 cents, or 6.7 percent, to $5.161 per million British thermal units at 2:49 p.m. on the New York Mercantile Exchange, the highest settlement price since Jan. 13. Prices have dropped 8.2 percent this year.

“There is this feel-good story out there that the things going on at Caterpillar and Apple mean that gas demand is not far away,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “It’s the recovery and you have cold weather, which means higher prices for natural gas.”

Industrial users trimmed gas purchases by 12 percent in the first seven months of the year amid the worst economic slowdown since the 1930s, according to the Energy Department.

Depressed Prices

“People are looking at corporate earnings and industrial demand picking up,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “It’s a bit of wishful thinking.”

Prices will be depressed for two to three years as the slowdown weighs on consumption, Paolo Scaroni, the head of Eni SpA, Italy’s biggest energy company, said at a London news conference.

Stockpiles rose to 3.716 trillion cubic feet in the week ended Oct. 9, a third consecutive record, an Energy Department report last week showed. Supplies may rise another 18 billion in the government’s next report, due Oct. 22, based on the median of six analyst estimates compiled by Bloomberg.

Speculators are in search of “cheap” energy investments and natural gas has lagged behind gains made by other commodities, Rose said. “When you look at the commodity board, the one thing that stands out, that has been beaten down, is natural gas.”

Commodity Index

Gas futures so far this year are the third-worst performer on the Reuters/Jefferies CRB Index of 19 commodities, after wheat and hogs. The index has advanced 21 percent since the end of December, led by gains in copper, sugar and gasoline.

“A close above $5.12 would bring a whole new set of people buying the breakout and it looks like it’s going to hold,” said Rose. “The $5.12 had been overhead resistance, and once they break through it, it becomes support,” said Rose, who said prices will probably rise to about $5.50 per million Btu.

A blast of cold weather in the U.S. last week limited the build-up of gas inventories and will keep storage from reaching capacity, said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary.

“It looks as though the ultimate worst-case scenario for gas storage topping out near or above 3.9 trillion cubic feet by the end of October has been avoided,” King said in a note to clients.

The Energy Department earlier this month forecast that supplies held in abandoned oil and gas fields, aquifers and salt caverns will probably reach 3.85 trillion cubic feet, just under its estimated storage capacity of 3.889 trillion, before cold weather begins to boost demand.

To contact the reporter on this story: Reg Curren in Calgary at
Last Updated: October 20, 2009 15:50 EDT

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