Saturday, October 3, 2009

Natural Gas Prices Higher Today

By Jason Womack

HOUSTON (Dow Jones)--Natural gas futures climbed higher on Friday as traders weighed record natural gas storage levels against the prospect of a cold winter and increased heating demand.

Natural gas for November delivery on the New York Mercantile Exchange was recently trading 7.3 cents, or 1.63%, higher at $4.539 a million British thermal units. The front-month contract fell as low as $4.351/MMBtu in earlier, choppy trading.

Natural gas futures have been under pressure from rising natural gas storage levels - which now stand at an all-time high. But the approach of winter heating season was spurring some buying.

"There are people that want to get into this market based on the idea that winter will be cold," said Mike Rose, director of the energy trading desk for the Fort Lauderdale-based brokerage Angus Jackson.

The onset of cold weather can spur gas prices higher, ratcheting up demand for the fuel used to heat homes and businesses.

At the same time, natural gas storage levels continue to rise, despite a pullback in U.S. natural gas drilling.

On Thursday, the U.S. Energy Information Administration reported that natural gas storage levels for the week ended Sept. 25 grew to 3.589 trillion cubic feet. Storage levels have now surpassed the Oct. 2007 record of 3.565 trillion cubic feet.

"Surpassing that record storage level yesterday has taken the wind out of the sails of some of the bulls," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn.

However, analysts said that storage levels could be drawn down quickly if the economy recovers and demand for the fuel improves.

Natural gas drilling activity has turned down with prices, which are still down more than 65% from their summer 2008 highs above $13/MMBtu and they hit a 7 1/2 low last month.

The natural gas rig count has fallen by more than half over the last year, creating concern that producers may not be able to ramp up production to meet rising demand, analysts said.

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

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