Natural Gas Drops Most in Seven Months on Stockpiles, Output

Natural gas futures fell the most in seven months in New York after government reports showed bulging U.S. inventories and rising production.

Supplies gained 83 billion cubic feet in the week ended April 23 to 1.912 trillion cubic feet, the Energy Department said. Analysts forecast an increase of 70 billion. Losses accelerated after a separate department report showed that gas output in February rose 1.6 percent to the highest monthly level since at least January 2005.

“Supply is there and demand is not,” said Kyle Cooper, a managing director at energy consultant IAF Advisors in Houston. “It just implies you’ve got to change something because we can’t keep putting gas in storage at this pace.”

Natural gas for June delivery fell 36.8 cents, or 8.5 percent, to settle at $3.98 per million British thermal units on the New York Mercantile Exchange, the biggest one-day decline since Sept. 11. Gas has dropped 29 percent this year.

Inventories were 18.8 percent above the five-year average, little changed from 18.5 percent in last week’s supply report. The average increase for the week is 66 billion cubic feet.

“It really is a one-two punch,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “It was the insult to injury to know that going forward we have more of these types of numbers in front of us with the production numbers as high as they are.”

The number of gas rigs exploring for the power-plant and industrial fuel in the U.S. is up 44 percent from a seven-year low in July. There were 956 rigs operating last week, according to Baker Hughes Inc.

Lower 48

Gas output in the lower 48 states in February rose to 63.85 billion cubic feet a day from a revised 62.85 billion in January, according to the Energy Information Administration’s monthly production report, known as EIA-914.

“This is just another nail in the coffin,” said Teri Viswanath, director of commodities research with Credit Suisse Securities USA in Houston. “The EIA is telling us they found another 1 billion cubic feet a day from January. Producers have underestimated how productive” new shale gas wells would be.

“We have surplus storage, so it’s going to be hard to get support for prices,” Viswanath said in a telephone interview.

Gas prices may get a lift once higher temperatures arrive with the U.S. summer, Viswanath said. Hot weather increases demand for natural gas from power producers as air conditioners are switched on, which can boost electricity consumption.

Cooling Needs

Above-normal temperatures are forecast in the eastern U.S. through May 8, according to a forecast from MDA Federal Inc.’s EarthSat Energy Weather in Rockville, Maryland.

New York will reach a high of 85 degrees Fahrenheit (29 Celsius) on May 1, the forecaster said. The typical high for the day is 67 degrees.

Cooling needs in the U.S. are expected to be 35 percent higher than normal in next seven days, according to Weather Derivatives of Belton, Missouri.

Stockpiles are heading for an April record increase of 320 billion to 330 billion cubic feet, said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary. Rising supplies will cause concern that a glut will develop later this year, he said.

“Everybody’s worried that storage will be filled,” King said.

Inventories reached a record 3.837 trillion cubic feet last November on increased supplies and lower consumption as the recession trimmed demand. U.S. stockpiles typically increase from April to November to assure adequate supplies to meet peak demand during the winter.

Henry Hub

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 5.68 cents, or 1.4 percent, to $4.2433 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 319,988 contracts at 2:57 p.m., compared with a three-month daily average total of 235,000. Volume totaled 206,653 yesterday. Open interest was 814,941 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.

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