Natural Gas Futures Decline on Credit Freeze, Economic Concerns

By Mario Parker

Oct. 10 (Bloomberg) -- Natural gas in New York dropped as investors fled commodities amid concern the global financial crisis will slash energy usage.

A declining economy would reduce demand from commercial and industrial users of gas, which accounted for 9.64 trillion cubic feet, or 42 percent, of consumption in the U.S. in 2007. Oil in New York headed for its biggest weekly decline since 2004.

``The credit market has been such that there is massive liquidation from commodities,'' said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. ``There's panic and widespread pandemonium.''

Natural gas for November delivery fell 13.1 cents, or 1.9 percent, to $6.694 per million British thermal units at 10:29 a.m. on the New York Mercantile Exchange. Prices have tumbled 51 percent from a 30-month intraday high of $13.694 on July 3. Futures are the lowest since Sept. 26, 2007.

``I've been in this business for 25 years, seen 1987 and 2002 and this is worse,'' Rose said. ``I've never seen so much money being shredded in my life.''

More than $4 trillion has been erased from global equities this week even as central banks across the world were forced to cut interest rates on concern banks will run out of money.

The Dow Jones Industrial Average fell below 9,000 for the first time since 2003 yesterday as higher borrowing costs and slower consumer spending spurred concern carmakers, insurers and energy companies will be the next victims of the credit crisis.

Commodities Rout

Commodities, as measured by the Reuters/Jeffries CRB Index of 19 raw materials, have tumbled as much as 10.41 to 300.12, the lowest since Aug. 22, 2007.

``Right now it's impossible to separate ourselves from what's happening economically across the world,'' said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. ``People are worried that demand is just not going to be there.''

Natural gas inventories also are adequate heading into winter, Florer said.

Inventories gained 88 billion cubic feet in the week ended Oct. 3 to 3.198 trillion cubic feet, the U.S. Energy Department said yesterday. Analysts forecast an 87 billion-cubic-foot advance. The average increase this time of year is 69 billion.

The increase 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. The surplus to the average widened to 69 billion, or 2.2 percent, from 50 billion, or 1.6 percent a week earlier.

``All momentum and all signs point lower,'' Florer said. ``It was definitely a bearish number.''

Crude oil for November delivery plunged $4.61, or 5.3 percent, to $81.98 a barrel at 10:32 a.m. in New York. Futures touched $78.61, the lowest since Oct. 9, 2007.

``One of the largest open interest segments was hedge funds,'' said Ed Kennedy, a trader with Commercial Brokerage Corp. in Miami. ``Now redemptions are huge in both mutual and hedge funds. They have to get out of positions because they need the money.''

To contact the reporters on this story: Mario Parker in Chicago at mparker22@bloomberg.net.