Thursday, August 26, 2010

Natural Gas Future Price Falls Below $4.00/mmBTU

Natural gas futures tumbled to the lowest price in almost five months as traders bet reports of a faltering economic recovery and mild weather will curb demand.
Gas dropped below $4 for the first time since May after a Commerce Department report showed that U.S. durable goods orders increased less than forecast in July. Normal temperatures across much of the country this week after hotter weather earlier in August, along with a lack of tropical storms, has sent gas down 21 percent this month, the biggest drop since January 2009.
“We’ve had a rash of poor economic headlines, all certainly weighing on the market,” saidStephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania.
Natural gas for September delivery fell 16.8 cents, or 4.2 percent, to $3.871 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since March 31. Prices were last below $4 on May 25.
Gas futures have declined 31 percent this year as rising U.S. production from shale formations and weak demand during the economic recovery have kept stockpiles higher than the five-year average since January.
Gas for January delivery is trading at the smallest premium to September futures in seven years as traders speculate that economic growth will slow.
“The gas market seems to be melting down,” said Carl Neill, an energy consultant at Risk Management Inc. in Atlanta. “Over the next couple of weeks you could get more downside and prices may fall to $3.81,” the lowest level this year, touched on April 1.
Gas futures may fall to $3.43 by the end of September after breaching a key support level, according to a technical analysis by Barclays Capital.
Home Sales
Sales of U.S. new homes unexpectedly dropped in July to the lowest level on record, a Commerce Department report today showed, signaling that even with cheaper prices and reduced borrowing costs the housing market is retreating.
Danielle, the second hurricane of the Atlantic season, is about 710 miles (1,142 kilometers) east of the northern Leeward Islands, the U.S. National Hurricane Center said in an update at about 11 a.m. in Miami. The system is moving toward the west- northwest at almost 17 miles (27 kilometers) per hour.
Hurricane Alex and Tropical Storm Bonnie this year reduced gas production in the Gulf of Mexico by 8 billion cubic feet, less than the 20 billion the government had expected, the department said in its Short-Term Energy Outlook on Aug. 10.
Storm Forecast
The National Oceanic and Atmospheric Administration earlier this month reduced its 2010 Atlantic hurricane forecast to 14 to 20 named storms from 14 to 23.
“Right now there is growing consensus that what was forecast to be a very active hurricane season potentially will not be,” said Schork. “At the end of summer, cooling demand begins to ease.”
Temperatures will be in a normal range across much of the country this week, according to Commodity Weather Group in Bethesda, Maryland. Power plants account for 31 percent of U.S. gas demand.
New York will have a high of 77 degrees Fahrenheit (23 Celsius) on Aug. 27, 3 degrees below normal, according to in State College, Pennsylvania.
A heat wave will return to the Mid-Atlantic and Northeast beginning this weekend and pushing through next week, according to Jim Rouiller, senior energy meteorologist at Planalytics Inc. in Berwyn, Pennsylvania.
Rouiller also said a trough of low pressure that has shielded the U.S. from Danielle will break down as the temperatures climb into the 90s along much of the eastern U.S. This will allow storms from the Atlantic to move into the Caribbean and the Gulf of Mexico, he said.
Stockpile Report
The Energy Department may say tomorrow that U.S. gas stockpiles increased by 38 billion cubic feet in the week ended Aug. 20, according to the median of 19 analyst estimates compiled by Bloomberg. The five-year average gain is 59 billion.
U.S. gas in storage totaled 3.012 trillion cubic feet in the week ended Aug. 13, 7 percent above the five-year average, the Energy Department reported last week.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, fell 7.67 cents, or 1.9 percent, to $3.9928 per million Btu on the Intercontinental Exchange.
Gas futures volume in electronic trading on the Nymex was 254,614 as of 2:43 p.m., compared with a three-month average of 259,000. Volume was 178,678 yesterday. Open interest was 828,565 contracts, compared with the three-month average of 808,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

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