Natural Gas Rises 12% but Is Off 35% for '09
online.wsj.com
JULY 17, 2009
By CHRISTINE BUURMA
NEW YORK -- Natural-gas futures prices soared 12% Thursday after government data showed a modest build in U.S. gas inventories that could signal that domestic production is starting to decline.
The price of the natural-gas futures contract for August delivery rose 38.5 cents, or 12%, to settle at $3.668 a million British thermal units on the New York Mercantile Exchange, after reaching as high as $3.68 during the session.
The price of the front-month contract remains down 35% for 2009 and down 65% from a year ago amid slumping industrial demand and a surplus of the fuel in storage following a boom in domestic output.
Market participants have closely eyed weekly inventory data for signs that a widespread pullback in drilling activity is starting to meaningfully dent production.
The Department of Energy on Thursday reported an injection into storage of 90 billion cubic feet of gas for the week ended July 10, just above the 87 billion cubic feet build analysts and traders had forecast in a Dow Jones Newswires survey and the five-year average build for the week of 88 billion cubic feet. A year ago, the agency posted a build of 102 billion cubic feet.
The latest increase was relatively small even as mild weather in the eastern U.S. last week and the Independence Day holiday curbed demand for gas-fired power, indicating the drilling pullback is starting to bite. The number of rigs drilling for gas in the U.S. fell to 916 last week, compared with the peak of 1,606 rigs in September, according to oil-field services company Baker Hughes Inc."The last two to three storage reports, in my opinion, have been supportive of starting to see a [production] decline," said Allen Rather, an independent energy analyst in Victoria, Texas.
A substantial surplus of gas remains in U.S. inventories. The latest increase brings the total amount of the fuel in storage to 2.886 trillion cubic feet, 19% higher than the five-year average for the week.
Traders have bet heavily that gas prices will continue to fall as a result of moderate temperatures and weak industrial demand during the economic downturn. Earlier in the week, the front-month contract fell to the lowest level since late April.
Hot summer weather or a storm threat to energy infrastructure could spark a sustained rally, particularly as the height of the Atlantic hurricane season approaches, said Mike Rose, the director of the energy trading desk at the Fort Lauderdale, Fla., brokerage house Angus Jackson Inc.
"Traders with short positions are running scared," Mr. Rose said, referring the bets that prices will fall. "The market was oversold."
In other commodity markets on Thursday:
CRUDE OIL: Prices rose because of a stronger stock market and the expiration of August crude options. With prices higher, traders who had option positions betting that prices would decline bought back futures contracts to cut losses, boosting the rise. Light, sweet crude oil for August delivery rose 48 cents, or 0.8%, to $62.02 a barrel on the Nymex.
SUGAR: Prices fell. Though sugar's underlying fundamentals are strong, with expectations for lower supplies coming from India, the world's second-leading sugar-cane producer, traders said that news already has been priced into the market. October sugar fell 0.38 cent to 17.39 cents a pound.
Futures and cash-price tables are on page C8.
Write to Christine Buurma at christine.buurma@dowjones.com
 MORE ENERGY: Natural-gas and oil futures rose on Thursday. Above, crude-oil options trading on the New York Mercantile Exchange on July 7. |
