Natural Gas Gains as Drop in Interest Rates May Boost Economy

By Reg Curren

Oct. 29 (Bloomberg) -- Natural gas futures in New York rose the most in six weeks on speculation a cut in interest rates will spur the economy and demand for the heating and industrial fuel.

Gas gained along with crude oil after the Federal Reserve reduced its benchmark interest rate to 1 percent, matching a half-century low, to head off an economic slowdown that may be the worst since World War II. About 25 percent of U.S. natural gas demand comes from industrial users.

``The rate cut is going to take pressure off mortgage holders, and that's one more bit of relief to the consumer,'' said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. ``It's going to free up money.''

Natural gas for November delivery advanced 28.3 cents, or 4.6 percent, to settle at $6.469 per million British thermal units at 3:19 p.m. on the New York Mercantile Exchange. The increase was the biggest in percentage terms since Sept. 17.

The November contract expired today. The more active December futures contract rose 36.2 cents, or 5.6 percent, to $6.778 per million Btu.

Crude oil for December delivery gained $4.77, or 7.6 percent, to $67.50 a barrel on the New York exchange.

Lower temperatures this week in the Northeast will reduce the amount of gas available to go into storage as demand for the fuel to run furnaces increases. About 52 percent of U.S. homes rely on gas for heat, according to the U.S. Energy Department.

``Some areas of the Northeast had snow, so there is some trading of what's outside your door,'' said Rose.

Colder Weather

The temperature in New York tonight is expected to dip to 37 degrees Fahrenheit (3 Celsius), the National Weather Service said today. The normal low for this time of year is 45 degrees.

``There were a lot of bears in the market and they were caught off guard by the weather in the Northeast,'' said Stephen Schork, president of Schork Group Inc. of Villanova, Pennsylvania. ``So they had to cover shorts.''

A speculative short is a bet that prices will decline. Shorts outnumbered long positions by 172,132 contracts on the New York Mercantile Exchange in the week ended Oct. 21, the Washington-based Commodity Futures Trading Commission said on Oct. 24.

U.S. inventories of gas probably increased 40 billion cubic feet in the week ended Oct. 24, according to the median of 14 analyst estimates compiled by Bloomberg. The average change over the past five years is an increase of 42 billion cubic feet, according to U.S. Energy Department data.

The department is scheduled to release its next supply report tomorrow at 10:35 a.m. in Washington.

U.S. Stockpiles

Natural gas stockpiles in last week's report were already higher than the five-year average of 3.327 trillion cubic feet that's typically on hand at the start of the heating season in early November. Supplies trailed last year's record amount of 3.545 trillion cubic feet.

Futures prices at $6 per million Btu, which happened earlier this week, lessen the incentive for energy companies to explore for and develop new gas reserves, said Peter Linder, an analyst and senior adviser at DeltaOne Energy Fund in Calgary.

``At that price about 80 percent of the gas in North America becomes uneconomical,'' he said. ``You're seeing a lot of gas wells shut, including EnCana announcing things, and a slowdown in drilling.''

EnCana Corp., Canada's largest natural-gas producer, said last week it shut wells that deliver 50 million cubic feet a day in Wyoming as a supply glut in the U.S. Rocky Mountains depressed prices.

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