Natural Gas Falls on Outlook for Above-Average Inventory Gain

By Reg Curren

Aug. 14 (Bloomberg) -- Natural gas in New York declined amid speculation a government report today will show an above-average expansion of supplies.

Inventories rose 52 billion cubic feet in the week ended Aug. 8, according to the median of 21 analyst estimates compiled by Bloomberg News. The average change for this time of year over the past five is an increase of 50 billion.

``There's really not a lot of excitement in the market right now,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. A stockpile gain will not support higher prices, Flynn said.

Natural gas for September delivery fell 4.5 cents, or 0.5 percent, to $8.411 per million British thermal units at 9:33 a.m. on the New York Mercantile Exchange. Futures have fallen 38 percent since closing at $13.577 on July 3, a 30-month high.

Gas is selling below its 200-day moving average of $9.599 and its 300-day moving average of $8.60 per million Btu. Gas is 21 percent higher than a year ago and on this day in 2007 closed at $6.94 per million Btu.

``It seems traders have returned to economic worries'' as a reason to sell energy holdings, said Peter Beutel, president of New Canaan, Connecticut-based Cameron Hanover Inc.

Consumer prices rose 0.8 percent, twice as much as expected, the Labor Department said today. Interest rates may have to rise to combat inflation, William Poole, the former St. Louis Fed president, said in an interview with Bloomberg Television.

The Federal Reserve would lose the ability to lower interest rates should the economic slowdown deepen.

Domestic Production

Onshore production in the U.S. is expected to increase 8 percent this year, spurred by the price run-up earlier this year, the Energy Department said in its monthly Short-Term Energy Outlook released Aug. 12. Higher output may prompt lower prices later in the year.

Stockpiles may end the injection season in October near last year's record of 3.545 trillion cubic feet, George Hopley, an analyst at Barclays Capital Inc. in New York, said in a report this week. The average over the past five years is 3.327 trillion cubic feet, according to the Energy Department, which is scheduled to release its inventory report at 10:35 a.m. in Washington.

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