Natural gas futures settle at 10-year low

| Tuesday, March 27, 2012

Natural gas futures closed at a 10-year low in New York on speculation that a government report this week will show a growing inventory surplus.

Gas slid 2.2 percent. The Energy Department may say on Thursday that stockpiles gained 50 billion cubic feet in the week ended Friday, according to Tradition Energy. The five- year average change for the week is a decrease of 8 billion, department data show. Gas slid to 10-year lows in January and again earlier this month on rising production and the warmest winter since 2000.

"Withdrawals from storage are done for the year," said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Conn.

Natural gas for April delivery fell 4.9 cents to $2.226 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Feb. 15, 2002. The futures have tumbled 26 percent this year.

Gas fell to $2.204 per million Btu on March 13, the lowest intraday price since February 2002. Gas, which has declined the most of the 24 commodities on the Standard & Poor's GSCI index this year, is heading for its worst quarter in two years.

August $1.50 puts, bets that prices will fall, were the most active options in electronic trading on the exchange. They fell 0.3 cent to 0.6 cent per million Btu on volume of 3,935 contracts at 2:37 p.m.

The price discount, or spread, of the April contract to May futures narrowed 0.5 cent to 9.3 cents.

Gas slipped 2.2 percent last week after the Energy Department said inventories expanded by 11 billion cubic feet in the week ended March 16 to 2.38 trillion, the earliest seasonal gain since 2007.

The supply surplus to the five-year average for the week widened to 54 percent, the largest since May 5, 2006, from 52 percent the previous week, according to department data.

Temperatures may be higher than normal in the central United States from Monday through April 4, according to Commodity Weather Group LLC in Bethesda, Md.

The low in Chicago on April 1 will be 52 degrees, 16 above normal, according to AccuWeather Inc. in State College. The low in St. Louis may be 53 degrees, 14 above normal.

Heating demand may be 35 percent below normal from April 1 through April 5, data from Weather Derivatives in Belton, Mo., show.

Winter in the lower 48 states was the warmest since 2000, with an average temperature of 36.8 degrees, the National Climatic Data Center in Asheville, N.C., said.

Marketed production of gas rose 7.9 percent in 2011 from the prior year to a record 24.17 trillion cubic feet, or 66.22 billion cubic feet a day, according to Energy Department data. The department estimates that production will increase 2.6 percent this year to 67.91 billion cubic feet a day.

"The natural gas market is back on the defensive," said Tim Evans, an energy analyst at Citi Futures Perspective in New York. "Warmer-than-normal temperatures continue to undercut heating demand across the northern U.S., pointing to above-average storage injections."

The number of rigs drilling for natural gas in the United States fell by 11 to 652 last week, the lowest level since May 2002, according to data from Baker Hughes Inc. The rig total has declined 19 percent this year.

Gas futures volume in electronic trading on the Nymex was 206,944 as of 2:31 p.m. compared with the three-month average of 393,000. Volume was 253,651 on Friday. Open interest was 1.23 million contracts, compared with the three-month average of 1.18 million.

The exchange has a one-business-day delay in reporting open interest and full volume data.

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