Natural Gas Futures Gain as AIG Rescue May Aid U.S. Economy

By Reg Curren

Sept. 17 (Bloomberg) -- Natural gas futures advanced as the Federal Reserve's rescue of American International Group Inc. eased concern of a U.S. economic slowdown.

Gas rose as much as 5.8 percent after the government took control of AIG, the country's biggest insurer. The futures have lost almost half their value since early July on speculation that demand from utilities and factories would drop because of a weakening economy.

``With AIG being supported by the government, there is upside for the entire energy complex,'' said Chris Jarvis, president of Caprock Risk Management in Hampton Falls, New Hampshire. ``It alleviates the need for people to sell at all costs and speculators are back in buying.''

Natural gas for October delivery gained 35.6 cents, or 4.9 percent, to $7.635 per million British thermal units at 10:55 a.m. on the New York Mercantile Exchange. Prices are up 15 percent from a year ago.

``Once people's risk aversion dissipates and the fear factor drops, they'll put money back into commodities,'' Jarvis said. ``Commodities have come off so far that if you want exposure it's a good time to get back in. I expect natural gas to be a leader.''

A decline in gas output from the Gulf of Mexico caused by hurricanes Ike and Gustav has slowed the rebuilding of stockpiles for the cold-weather season, helping lift prices, Jarvis said.

U.S. gas inventories rose 64 billion cubic feet in the week ended Sept. 12, according to the median of 10 analyst estimates compiled by Bloomberg. Supplies in the same week over the past five years advanced an average 88 billion cubic feet, according to the Energy Department.

Supply Estimates

Inventories are probably going to be near the five-year average of 3.4 trillion cubic feet for the coming winter, Jarvis said. Supplies rose to a record 3.545 trillion last Nov. 1.

``The sentiment in the market is maybe we'll fall a little behind on storage, with a gain in the high 50s or low 60s'' last week, said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut. ``We might find ourselves 150 billion cubic feet less than where we were last year in the next couple of weeks because of shut-ins.''

Gulf production has been mostly shut this month because of hurricanes Ike and Gustav, boosting expectations that winter inventories will be pinched. Supplies normally gain before November, when demand for the heating fuel begins its rise to a winter peak.

About 84 percent of the Gulf's daily production of 7.4 billion cubic feet was shut in as of yesterday, the U.S. Minerals Management Service said.

`Base at $7'

Technical analysis of the natural gas price chart also suggests a ``more constructive'' outlook for the heating and industrial fuel, Orr said.

``Gas is hanging in there and has been building a base at $7 for close to a month,'' said Orr. ``If you go back and look at the chart last year it ground down in November and December to that $7 level and then started to shoot up. You need time and price to set a bottom.''

Technical traders watch for patterns on daily charts for clues to price direction, and will sell or buy commodities or equities based on those indicators.

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