Natural Gas Prices Drop to Lowest Level in 6 years on weak US Economy

 

 

naturalgas

By Mario Parker

March 27 (Bloomberg) — Natural gas futures fell to the lowest price in more than six years on weakening demand during the recession.

The heating and industrial fuel has tumbled 73 percent from the 2008 high reached in July as consumption contracted. Incomes in the U.S. fell 0.2 percent in February, the Commerce Department said today. Gas prices dropped yesterday after a government report showed an unexpected gain in U.S. stockpiles.

“It’s the economy,” said George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York. “The selloff started with the build yesterday and that drove the point home that the market is well-supplied, demand is weak and the economy is weak.”

Gas futures for April delivery fell 31.6 cents, or 8 percent, to settle at $3.631 per million British thermal units on the New York Mercantile Exchange, the lowest closing price since Sept. 25, 2002. The futures tumbled 14 percent this week, the biggest one-week decline since August 2007, and are down 35 percent this year.

The April contract expired today. The more active May futures fell 29.7 cents, or 7.4 percent, to $3.737.

An Energy Department report yesterday showed that supplies rose 3 billion cubic feet in the week ended March 20 to 1.654 trillion cubic feet. Analysts forecast a drop of 10 billion. The average for this time of year is a decline of 49 billion because of heating-fuel demand at the end of the cold-weather months.

“That just brought reality back into the market,” Ellis said. “As long as there’s a supply overhang, as long as demand is weak, we’re going to see low prices.”

Factory Demand

Industrial users and power plants each account for about 29 percent of gas consumption, according to the Energy Department. The department has forecast a 5.1 percent decline in industrial usage of gas for 2009 as the economy shrinks.

Spending by American consumers rose 0.2 percent in February after climbing 1 percent the previous month, the Commerce Department said today. Inflation-adjusted spending on durable goods, such as cars, furniture, and other long-lasting items, dropped 1.5 percent.

Natural gas stockpiles were 20 percent above the five-year average and 29 percent higher than a year earlier, yesterday’s report showed. Supplies in last week’s report were 16 percent above average.

“Notably, last week marks the earliest gas storage injection since March 2003,”Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston wrote today in a report.

U.S. Supplies

Stockpiles typically drop to 1.364 trillion cubic feet at the end of the heating season in late March or early April, based on the five-year average. Supplies in yesterday’s report were 21 percent higher than that total.

“No weather and ample supply is a tough combination to beat,” said Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York.

Producers of the fuel have responded to falling prices by slashing output. Baker Hughes Inc. today said natural gas rigs fell by 47, or 5.5 percent, to 810, the lowest since the week ended April 25, 2003. The count was down 50 percent from a peak of 1,606 on Sept. 12.

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