Natural Gas Rises on Speculation Recovering Economy to Boost Fuel Demand

Natural gas futures rose to a three-week high on speculation a rebound in the U.S. economy will spur demand for the power-plant and industrial fuel.

Gas advanced as Dow Chemical Co., the largest U.S. chemical maker, reported first-quarter profit that topped analyst estimates and said its plants ran at 83 percent of capacity, a 7 percentage-point increase from the previous quarter. Industrial gas purchases account for about 29 percent of consumption.

“The economy is rebounding in the U.S. and that’s positive for gas because it’s a domestic commodity,” said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire.

Natural gas for May delivery rose 5.5 cents, or 1.3 percent, to $4.271 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since April 5. Gas futures are up 29 percent from a year ago.

May futures expired today. The more actively traded June contract rose 3.3 cents, or 0.8 percent, to $4.348.

Other U.S. manufacturers are also increasing output as the economy recovers from the worst recession since the 1930s. Gas purchases by factories, chemical plants and steel mills slid 7.7 percent in 2009, according to Energy Department data.

General Motors Co. said yesterday it plans to upgrade five North American engine factories, adding or preserving 1,600 jobs. Caterpillar Inc., the world’s largest maker of construction equipment, said on April 25 that the company is seeing increased orders from mining and energy customers.

Higher Prices

Technical analysis suggests prices may be able to rally further, Michael Fitzpatrick, vice president of energy at MF Global in New York, said in a note to clients.

“Prices above both the 10- and 40-day moving averages means there is still an active buy signal,” Fitzpatrick said. “Resistance at $4.32 to $4.33 may be a bit stiff.”

The 10-day moving average was $4.1032 per million Btu and the 40-day was $4.1842, according to data compiled by Bloomberg.

“All of the data point to improving demand from the industrial side,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “We’ve had positive U.S. economic data and that has been reinforced by positive corporate profits.”

Gas futures will probably average $4.72 per million Btu in 2010 and rise to $5.75 next year on improving demand, Schenker said in a telephone interview.

A report yesterday that showed U.S. consumers became more optimistic this month has also helped lift gas prices, Schenker said.

Economic Reports

The Conference Board’s confidence index rose to 57.9, exceeding all forecasts of economists surveyed by Bloomberg News and the highest level since Lehman Brothers Inc. collapsed in September 2008, according to data from the New York-based private research group.

“We feel pretty good about broad-based economic growth in the medium term,” Schenker said.

Earlier this month, a Commerce Department report showed higher-than-expected retail sales in March and Federal Reserve data released on April 15 indicated factory production climbed 0.9 percent last month.

A weekly Energy Department report tomorrow may show that gas stockpiles rose 70 billion cubic feet last week, based on the median of 14 analyst estimates compiled by Bloomberg. The five-year average increase for the week is 66 billion. Estimates range from 61 billion to 80 billion.

Stockpiles were 19 percent above the five-year average in last week’s report.

Henry Hub

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 1.12 cents, or 0.3 percent, to $4.1865 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 183,015 contracts as of 3:04 p.m., compared with a three-month average daily total of 235,000. Volume was 214,021 yesterday. Open interest was 823,549 contracts, compared with the three- month average of 827,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.