Natural Gas Futures Drop After Supplies Gain More Than Expected

By Reg Curren

April 9 (Bloomberg) -- Natural gas futures fell in New York after a government report showed that U.S. inventories advanced more than analysts expected as the recession cuts into demand for the industrial fuel.

Supplies rose 20 billion cubic feet in the week ended April 3 to 1.674 trillion cubic feet, the Energy Department said. Analysts expected a gain of 14 billion. Inventories were 23 percent higher than the five-year average compared with a 22 percent surplus in last week’s report. The average change over the past five years is an increase of 13 billion cubic feet.

“All of the data points we get are incrementally negative,” said Tom Orr, research director at Weeden & Co., a brokerage in Greenwich, Connecticut. “Gas will continue to be plagued by its own woes. We’re probably going to work our way down to the lower $3s and maybe even $3.”

Natural gas for May delivery fell 4.6 cents, or 1.3 percent, to $3.584 per million British thermal units at 12:29 p.m. on the New York Mercantile Exchange. Gas has declined 36 percent this year and is down 74 percent from a 2008 high of $13.694 reached on July 2. Futures earlier fell to $3.555 per million Btu, the lowest since Sept. 26, 2002.

Weeden cut its full-year price forecast for natural gas to $4 per million Btu from $4.75 because of sluggish demand from manufacturers and power generators. Futures will average $3.50 per million Btu in this quarter and the next, Ellen Hannan, an energy analyst at Weeden, said in an April 6 report.

Gas consumption by factories may drop 6 percent this year as the recession cuts demand, the department said last month.

Weak Economy

Gross domestic product in the U.S. probably shrank 5 percent in the first quarter, the median estimate of 57 economists surveyed by Bloomberg News. The economy contracted 6.3 percent in the fourth quarter of last year.

“It wasn’t an overly bearish number, though it does seem to suggest maybe there was a little more weakness on industrial demand,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.

Horwitz doesn’t expect prices to fall much further because producers have shut rigs in the U.S., which will cut supplies in the second half of this year. Demand will also begin to stabilize, he said.

Prices will need to average about $4.50 per million Btu in 2009 to help reduce supplies and bring them in line with demand, Horwitz said.

Storage operators and utilities injected 2.178 trillion cubic feet between April and November 2008. A similar rebuilding of inventories this year would put stockpiles at 3.83 trillion cubic feet by Oct. 31, 8 percent above the record 3.545 trillion in storage on Nov. 2, 2007.

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