Natural Gas Futures Fall as Gustav Gulf Damage Appears Limited

By Reg Curren

Sept. 2 (Bloomberg) -- Natural gas futures fell the most in seven weeks amid speculation production from offshore platforms in the Gulf of Mexico will soon resume, after Hurricane Gustav forced companies to shut output last week.

Royal Dutch Shell Plc, Total SA and ConocoPhillips plan to inspect platforms today after Gustav passed through the region yesterday. Crude oil also fell on speculation the storm did minimal damage. The Gulf accounts for about 14 percent of U.S. natural gas output.


``It's a sigh of a relief from traders that the energy industry dodged a bullet,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``They're taking the storm-risk premium out of the market.''

Natural gas for October delivery declined 56.3 cents, or 7.1 percent, to $7.38 per million British thermal units at 9:11 a.m. on the New York Mercantile Exchange, the biggest one-day decline since July 17. Gas touched $7.237 per million Btu, the lowest since Dec. 28.

Workers from more than 70 percent of the platforms and rigs in the Gulf were evacuated as Gustav approached, according to the U.S. Minerals Management Service. All of the area's 1.3 million barrels a day of oil and 95 percent of its gas, or 7.06 billion cubic feet, were shut.

``This also has a lot to do with the dollar,'' said Jarvis. ``As long as commodities, and especially crude, continue to sell off, the entire energy sector has downside risk.''

The dollar traded at $1.4487 per euro, 0.9 percent stronger than $1.4617 yesterday.

Crude oil fell $8.11, or 7 percent, to $107.35 a barrel. Earlier it reached as low as $105.46, the lowest since April 4.

A rising dollar can prompt investors who use commodities as an inflation hedge to exit the market.

Gas stockpiles are also above the five-year average for this time of year, suggesting there will be adequate supplies to meet winter demand.

Inventories totaled 2.757 trillion cubic feet in the week ended Aug. 22, 71 billion more than the five-year average, the U.S. Energy Department said last week.

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