Natural gas futures fell in New York after orders placed with U.S. factories dropped, signaling that demand from manufacturers may be slow to rebound after the worst recession since the 1930s.
Futures dipped after orders declined 1.4 percent in May, more than forecast and the largest drop since March 2009, the Commerce Department said today. Industrial users account for 28 percent of gas demand, according to the Energy Department.
“We need factories to restart, we need industry to start back up and manufacturing to be robust,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “Manufacturing is the key. It’s the key to the economy, and the key to the economy is the key to natural gas.”
Natural gas for August delivery fell 16.7 cents, or 3.4 percent, to settle at $4.687 per million British thermal units on the New York Mercantile Exchange. Gas has dropped 16 percent this year on forecasts that U.S. inventories will be near record highs at the end of the injection season in October.
Stockpiles will reach 3.805 trillion cubic feet in October, the Energy Department estimated in its monthly Short-Term Energy Outlook on June 8. Supplies rose to a record 3.84 trillion cubic feet in November 2009. Gas inventories increased 60 billion cubic feet to 2.684 trillion in the week ended June 25, the Energy Department reported yesterday.
Industrial Use Below Average
The Federal Reserve’s industrial production report last month showed capacity utilization, which measures the amount of a plant that is in use, was 74.7 percent in May, below the 20- year average of 80 percent. Manufacturing accounts for about 11 percent of the economy.
“Until we get some economic numbers that create demand, natural gas is going to tread water between $4 and $5 all summer long,” Rose said.
Traders are waiting to see whether above-normal temperatures will dent rising stockpiles, said Teri Viswanath, director of commodities research for Credit Suisse Securities USA in Houston.
“While the market continues to remain nervous about high end-of-season storage levels, the fact is we’re only halfway through the injection season and a lot could happen,” Viswanath said.
The eastern and western U.S. can expect above-normal temperatures for the next week to 10 days, said Matt Rogers, president of the Commodity Weather Group LLC in Bethesda, Maryland, in his daily report.
“For the Northwest, this should be the hottest weather of the season so far,” Rogers said. “For the East Coast, Midwest, and interior Deep South, this should either match or exceed the hottest weather so far.”
96 Degrees in New York
Temperatures in New York are forecast to reach 96 degrees Fahrenheit (36 degrees Celsius) by July 6, according to the National Weather Service. Temperatures in Washington are expected to reach 100 degrees that day.
“Inventories are still high, there’s no hurricane threat, and while it’s forecast to be hot, it’s already been hot and we still put 60 bcf in storage,” said Kyle Cooper, a managing director at energy consultant IAF Advisors in Houston.
If predictions have moderated by July 6, when the Nymex reopens after the U.S. July 4 holiday weekend, gas will plunge, Viswanath said.
“There’s too much uncertainty about the heat of the summer in the North, so the market doesn’t want to price it too high,” said Laurent Key, natural gas analyst with Societe Generale in New York.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 17.69 cents, or 3.9 percent, to $4.717 per million Btu, according to data compiled by Bloomberg.
Gas futures volume in electronic trading on the Nymex was 174,940 as of 2:47 p.m., compared with a three-month average total of 259,000. Volume was 286,197 yesterday. Open interest was 772,780 contracts, compared with the three-month average of 843,000. The exchange has a one-business-day delay in reporting open interest and full volume data.