Natural Gas Declines Amid Ample Supplies, Stronger U.S. Dollar

By Reg Curren

Aug. 15 (Bloomberg) -- Natural gas in New York declined amid speculation supplies are ample for winter heating needs and as stronger dollar diminished the appeal of commodities.

Gas stockpiles are near the five-year average for this time of year and increased domestic production is expected to bolster inventory. The dollar headed for a fifth weekly gain against the euro, its longest winning streak in more than two years.

``It's pretty clear there's been a major change in the last couple of weeks with the reemergence of the dollar,'' said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut. ``The money that has been pouring into commodities in the past 18 months is coming out and repositioning.''

Natural gas for September delivery fell 9.9 cents, or 1.2 percent, to $8.037 per million British thermal units at 10:57 a.m. on the New York Mercantile Exchange. It earlier fell to $7.96 per million Btu, the lowest intraday price since $7.916 on Feb. 6.

Futures have declined 41 percent since closing at $13.577 on July 3, a 30-month high, and are selling below their 200-day moving average of $9.597.

``The sentiment in gas is bearish,'' said Orr. ``Prices may dip down to the low $7s if crude goes to $105 a barrel.''

Crude oil for September delivery fell $3.63, or 3.2 percent, to $111.38 a barrel in New York. Futures earlier touched $111.34 and reached a record $147.27 on July 11.

Oil's 200-day moving average is $110.16a barrel, a price it last touched in early April.

The dollar traded at $1.4688 at 10:58 a.m. in New York from $1.4826 yesterday.

Commodities Crumble

As investors shed commodity holdings ``gas is going along for the ride'', said George Hopley, an analyst at Barclays Capital Inc. in New York.

Commodities, measured by the Standard & Poor's GSCI index, have tumbled 21 percent from their record July 3, descending into a bear market. Gold plunged below $800 an ounce, platinum posted the biggest drop in almost seven years and corn and copper slumped as the dollar rebounded.

``Once gold tripped up that allowed the dollar to trade a little stronger, so commodities are getting clipped,'' said Gordy Elliott, a director at FC Stone LLC in St. Louis Park, Minnesota. ``Gas is following.''

If crude oil closes below $110 a barrel, `` the whole energy complex is going to fall off a cliff,'' said Elliott.

A storm-free ``Gulf of Mexico means there is no threat to production,'' said Hopley. Cyclones can enter the Gulf and curb output from oil and natural gas platforms and rigs. The hurricane season began June 1 and runs through November.

Quiet Gulf

Hurricane Katrina formed over the Bahamas on Aug. 23, 2005, making landfall in southeast Louisiana on August 29. Hurricane Rita, the most intense tropical cyclone ever observed in the Gulf, made landfall Sept. 24, 2005, at Sabine Pass near the borders of Texas and Louisiana.

The storms crimped Gulf gas flow, prompting the fuel to touch $15.78 per million Btu on Dec. 13, 2005, the highest since gas began Nymex trading.

Pushing natural gas much lower than $8 per million Btu is not probably because the lower price would attract buyers, said Elliott, who is buying contracts today for the needs of industrial customers later this year.

A low-pressure system over Puerto Rico may develop into a tropical depression within the next day, the National Hurricane Center in Miami said in an outlook today. Some forecasters have it tracking on the east side of Florida, should it develop, Hopley said.

Ample Supplies

``It may go along the East Coast and cover the area with clouds and rain, shielding the region from heat,'' Hopley said. ``That would keep a damper on demand,'' reducing the need for electricity from gas-fired power plants.

Gas inventory of 2.567 trillion cubic feet is 6 billion, or 0.2 percent, below the average for this time of year for the past five, the Energy Department said in its weekly update yesterday. Inventories rose to a record 3.545 trillion cubic feet in Nov. 2007, helping keep prices within a range of $7 to $9.366 per million Btu through the end of March.

Domestic gas output is expected to increase by 8 percent this year on higher production from fields in Texas, Louisiana and Wyoming, the department said in its monthly Short-Term Energy Outlook earlier this week.

To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.