March 30 (Bloomberg) -- Natural gas futures advanced in New York on speculation a recovery in the economy will lift demand for the industrial and power-plant fuel.
“This is a great area to nibble because of the upside potential based on the positive outlooks for the future,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “Natural gas is a longer-term story.”
Natural gas for May delivery gained 5.7 cents, or 1.5 percent, to settle at $3.973 per million British thermal units on the New York Mercantile Exchange. Gas futures have declined 29 percent this year.
Prices may advance over the next couple of weeks as speculators exit short positions, or bets that prices will fall, said George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York.
“The market seems poised to make a decent move to the upside,” he said in a telephone interview. “Everything has been working technically so well for so long you have to think everyone is in on the trade, so now there’s a greater risk of that trade reversing.”
Short Positions
Speculators in New York futures held 185,973 more short futures positions, or bets on price declines, than long positions in the week ended March 23, according to Commodity Futures Trading Commission data. Prices have declined this year on signs that stockpiles and production were adequate to meet U.S. demand.
The end of winter and heating-fuel consumption has turned attention to the economic recovery, Rose said.
The government is scheduled to release a report tomorrow on factory orders and another on April 2, when commodity markets are closed, covering the March unemployment rate.
“The unemployment report on Friday means a lot because either we’re going to base gas prices here and work our way higher, or base and meander lower,” Rose said. “The downside is kind of capped, the upside is limited, but expandable to $5” per million Btu.
Industrial demand for gas dropped 7.7 percent in 2009 during the worst recession since the 1930s.
Growing Economy
Prices will rebound as the economic expansion stretches out this year and into 2011, said Peter Beutel, president of trading adviser Cameron Hanover Inc. in New Canaan, Connecticut. The economy is forecast to expand 3 percent this year and next year, according to 53 responses to a Bloomberg survey.
“You do have the longer-term people looking at this market and saying: ‘A year from now we’re not going to be anywhere near here,’” Beutel said in a telephone interview. “And ultimately these lower prices will have an impact on the rig count” to reduce exploration and eventually lower production.
The number of gas rigs operating in the U.S. has been rising since touching a seven-year low in July. There were 941 gas rigs working last week, according to Baker Hughes Inc.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, fell 4.61 cents, or 1.2 percent, to $3.7848 per million Btu, according to data compiled by Bloomberg.
Gas futures volume in electronic trading on the Nymex was 148,755 contracts as of 2:52 p.m., compared with a three-month daily average of 223,000. Volume totaled 193,635 yesterday. Open interest was 814,092 contracts, compared with the three-month average of 795,000. The exchange has a one-business-day delay in reporting open interest and full volume data.
--Editors: Bill Banker, Charlotte PorterTo contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net
To contact the editor responsible for this story: Bill Banker at bbanker@bloomberg.net
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