Futures Fall with Government Report

By Reg Curren

April 15 (Bloomberg) -- Natural gas futures fell the most in three months after a government report showed that U.S. inventories gained more than analysts anticipated, widening a surplus of the industrial and power-plant fuel.

Supplies rose 87 billion cubic feet in the week ended April 9 to 1.756 trillion cubic feet, the Energy Department report today showed. Analysts forecast a gain of 81 billion. Gas also fell as a report showing an increase in first-time jobless claims spurred concern that the economic recovery would be slow to develop.

“Everyone thought it would be a big number, but not this big,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “And in combination with the worse-than-expected unemployment number, it let the steam out of what was looking to be a good thing on the long side.”

Natural gas for May delivery fell 21.4 cents, or 5.1 percent, to settle at $3.985 per million British thermal units on the New York Mercantile Exchange, the biggest one-day drop on a percentage basis since Jan. 11. Gas has declined 28 percent this year.

“Big fluctuations in the jobless numbers make you pause, and that’s enough to pull” prices back, Rose said.

Gas will probably trade between $3.90 and $4.30 per million Btu before the start of the Atlantic hurricane season and higher summer temperatures, Rose said. The hurricane season runs from June 1 to the end of November.

Storms and Heat

Tropical storms can disrupt gas production in the Gulf of Mexico and hot weather lifts demand for power from gas-fired generating stations to run air conditioners.

Gas inventories were 16 percent above the five-year average, today’s report showed, up from 12 percent in the previous Energy Department report.

The number of gas rigs working in the U.S. increased to 959 in the week ended April 9, up 44 percent from July, according to Baker Hughes Inc. The higher total indicates output from gas fields may gain later this year.

U.S. imports of liquefied natural gas may rise 42 percent in 2010 to approximately 1.76 billion cubic feet per day, the Energy Department forecast on April 6 in its monthly Short-Term Energy Outlook.

‘Record Injections’

Warmer-than-normal weather in April will probably “lead to record injections in excess of the 10-year average inventory build of 168 billion cubic feet” for the month, Teri Viswanath, director of commodities research with Credit Suisse Securities USA in Houston, said in a note to clients.

Heating requirements were 46 percent lower than normal in the week ended April 8, according to data from the National Oceanic and Atmospheric Administration.

“The bottom line is that working gas in storage is filling at a faster clip than last year and should keep a lid on prices,” Viswanath said.

Gas inventories rose to a record 3.837 trillion cubic feet in November as increased output swamped a market where demand from factories, chemical plants and steel mills was depressed by the worst recession since the 1930s.

Concern that stockpiles may top the record this year is weighing on futures, said Kyle Cooper, a managing director at energy consultant IAF Advisors in Houston.

Supply Increases

“The builds are going to get quite a bit larger in two or three weeks and we may be in line for a couple of 100 billion builds at the beginning of May,” he said. “That will continue to build the surplus. Right now, I see over 4 trillion cubic feet” by the start of the cold-weather season.

Prices are getting some support on speculation that power- generators will favor gas over coal because it’s cheaper to burn at these levels, Cooper said.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, was little changed, rising 0.39 cent to $4.155 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 308,919 contracts as of 2:45 p.m., compared with a three-month daily average of 232,000. Volume totaled 379,581 yesterday. Open interest was 855,491 contracts, compared with the three-month average of 815,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

--Editors: Bill Banker, Richard Stubbe

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net