Natural Gas Falls as Investors Dump Commodities, Supply Rises

By Reg Curren

Oct. 3 (Bloomberg) -- Natural gas in New York fell for a second day as investors sold commodities on concern a financial- industry crisis will send the U.S. economy into recession.

A slowing economy would trim industrial demand for gas supplies which, after an increase last week, are 1.6 percent above the five-year average. Commodities, as measured by the Reuters/Jefferies CRB Index of 19 raw materials, have tumbled 10 percent this week, the most since at least 1956.

``Commodities are weak in general,'' said Carl Neill, an energy analyst at Risk Management Inc. in Chicago. ``The overwhelming factor in the market is the big build in supplies.''

Natural gas for November delivery fell 16.5 cents, or 2.2 percent, to $7.316 per million British thermal units at 9:16 a.m. on the New York Mercantile Exchange after shedding 3.2 percent yesterday.

Inventories gained 87 billion cubic feet in the week ended Sept. 26 to 3.11 trillion cubic feet, the U.S. Energy Department said yesterday. Analysts had forecast a 73 billion-cubic-foot advance.

The rise kept supplies on a pace to be above the five-year average of 3.327 trillion cubic feet at next month's start of the peak-demand heating season in the U.S. Stockpiles were 50 billion cubic feet higher than average for this time of year, up from 35 billion in last week's report.

Hurricanes Ike and Gustav left millions of people without electricity last month, reducing demand for gas as a fuel at power plants.

U.S. electricity output decreased 3.4 percent in the week ended Sept. 25, according to an analysis by Genscape Inc. Output was down 11 percent from a year earlier.

Gas production companies in the Gulf of Mexico have restored more than half of the offshore region's daily output of 7.4 billion cubic feet, according to the U.S. Minerals Management Service.

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