Nymex Natural Gas Surges on Strong Demand in U.S.: World's Biggest Mover
March 29 (Bloomberg) -- Natural gas futures rose 4.6 percent, the biggest fluctuation of any commodity market today, on speculation that U.S. demand this summer will be stronger than normal.
Forecasts for reduced hydroelectric power in the Pacific Northwest indicate higher demand for gas-generated power. After two mild summers, many traders expect normal to above-normal temperatures across the U.S. this year that would push up power demand to run air conditioners and limit the amount of gas utilities could store for use the following winter.
``Anticipation of summer demand is being priced into this market,'' said Phil Flynn, vice president of risk management with Alaron Trading Corp. in Chicago.
Natural gas for April delivery rose 32.4 cents to $7.323 per million British thermal units on the New York Mercantile Exchange. It was the biggest one-day gain since March 14. Prices are up 37 percent from a year ago. The April contract expired at the close of trading today. The May futures contract rose 28 cents, or 3.9 percent, to $7.402 per million Btu.
``You would think, by the laws of averages, we might have a hot summer even though we haven't had one in a couple of years,'' Flynn said. ``Anything under $7 seems cheap right now.''
Gas fell as low as $6.96 per million Btu during the session, briefly dipping below the $7.016 level that, according to a trading tool called a pivot point, should have attracted buying interest. When the contract failed to hold the lower level, buyers stepped in.
``Plenty of large industrial users and utilities and large asset owners like power generators have been buying into the highs and are doing incremental purchases at every dip,'' said Charlie Sanchez, energy markets manager at Houston-based consulting company Gelber & Associates.
Forward Curve
Worrying these consumers is a forward curve that has priced the July futures 27.5 cents higher than the April contract, and gas for delivery in December at over $8 per million Btu, Sanchez said.
Utilities and manufacturers typically store natural gas from April to November, when demand eases. A hot summer can reduce the pace at which gas can be injected into the nation's more than 400 underground storage caverns and reservoirs. Stored gas is used during the winter, when demand is strongest.
Adding to hot-weather concerns are low levels of snow in the Pacific Northwest that might diminish the amount of hydroelectricity available during hot weather, boosting demand from gas-fired power plants.
The level of snow accumulated in the mountains that can provide summer runoff for water-powered generators is 34 percent below normal, according to Bloomberg data.
Low Hydro
Dams along the Columbia River system are the biggest source of hydroelectric power in the U.S., producing about 45 percent of the electricity used on the West Coast. Low flow rates in Washington State's rivers has led Governor Christine Gregoire to authorize the state's ecology department to declare a drought emergency.
Increased demand from a strengthening economy and natural- gas production struggling to hold constant increase the risks of rising demand caused by a hotter-than-normal summer.
``A combination of a hot summer, and the lack of hydro in the Pacific Northwest, and just normal increases in demand and the production issues that we have, that's supportive of natural gas,'' said Joseph Allman, an analyst with RBC Capital Markets in Houston.
The economy probably grew at a 4 percent annualized rate in the fourth quarter, according to a Bloomberg survey. The rate matches projections for economic growth this quarter, according to a separate survey earlier this month.
The U.S. Commerce Department is expected to issue its final revision for fourth quarter gross domestic product tomorrow.
Gas Production
Natural-gas production in the U.S. fell by 2 percent last year from 2003, according to data from the U.S. Energy Department. The decline occurred even as the number of rigs drilling for natural gas averaged 1,024, or 18 percent more than in 2003, according to a weekly survey conducted by oil-field services firm Baker Hughes Inc.
As more capital invested by hedge funds and index funds is moved into commodities from fixed-income, currency and equities markets, analysts expect economic data to play an increasing role in determining the direction of prices.
Cold weather last week also is expected to have reduced a supply surplus compared with the five-year average. Heating-fuel demand was 9 percent higher than normal, according to temperature data weighted for gas-furnace use from the National Oceanic and Atmospheric Administration.
Inventories of natural gas held in the nation's more than 400 underground storage caverns and reservoirs probably fell last week by 59 billion cubic feet, the median estimate of 18 analysts polled by Bloomberg. That would compare with an average drop of 25 billion over the previous five years, and would cut the surplus to 19 percent from 22 percent the previous week.
Supplies stood at 1.29 trillion cubic feet the week ended March 18, 232 billion cubic feet above historical levels.
To contact the reporter on this story:
Jim Kennett in Houston at jkennett@bloomberg.net
To contact the editor responsible for this story:
Robert Dieterich at rdieterich@Bloomberg.net.
Last Updated: March 29, 2005 16:15 EST
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This is not just hedge funds and short-covering, folks, this is the end-user markets bidding up natty even though we are entering shoulder season with much more gas than normal. Man I like this business! |
