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Natural Gas Falls as Supplies Ample for Slow Economic Recovery

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July 14 (Bloomberg) -- Natural gas futures fell for the seventh time in eight days on skepticism the U.S. economic recovery will be strong enough to absorb rising production of the factory and power-plant fuel.

U.S. retail sales fell by a more-than-projected 0.5 percent in June following a 1.1 percent May drop, Commerce Department data showed today, indicating the pace of economic recovery moderated. The Energy Department last week said U.S. gas output this year will be up 2.1 percent from 2009.

“Production is going to be higher and the market is having a hard time finding anything to get excited about,” said Phil Flynn, vice president of research at PFGBest in Chicago. “The retail number took away more momentum in the market.”

Natural gas for August delivery fell 4.8 cents, or 1.1 percent, to $4.306 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since June 1. Gas has dropped 14 percent from a month ago.

An Energy Department report tomorrow may show that U.S. gas stockpiles gained 80 billion cubic feet last week, based on the median of 17 estimates in a Bloomberg survey of analysts. The five-year average increase is 89 billion.

“Hot weather had an impact on gas-fired power generation and raised gas demand,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston. Still, “the storage level is very high.”

Supply Report

Gas stockpiles gained 78 billion cubic feet to 2.762 trillion in the week ended July 2, the department said last week. Supplies were 12 percent higher than the five-year average.

Gas may fall below $4 per million Btu if the August contract breaks below its all-time low of $4.07, according to a technical analysis by Chris Kostas, a senior analyst at Energy Security Analysis Inc. in Wakefield, Massachusetts.

A break below that level, reached on May 6, will send the August contract below $4 before it expires on July 28, and gas futures will approach $3 by September, according to Kostas.

“You had one of the hottest starts to summer on record and yet you are sitting on these kinds of price levels,” Horwitz said. “I think it’s pretty telling” that storage is ample.

New York saw 103 degrees Fahrenheit on July 6, a record for the date, according to the National Weather Service.

Temperatures in the U.S. Midwest and Northeast will be above normal through July 23, according to MDA Federal Inc.’s Earth Sat Energy Weather, based in Rockville, Maryland.

Hotter Weather

New York will have a high of 90 degrees Fahrenheit (32 Celsius) on July 17, 5 degrees above average, according to AccuWeather Inc. Boston’s temperature is forecast to hit 92.

About 22 percent of electricity is generated using natural gas, according to the Energy Department.

U.S. gas production will average 61.26 billion cubic feet a day this year, up 2.1 percent from 59.98 billion in 2009, according to the department.

The government “projects a continuing decline in Gulf of Mexico production, which is offset by gains in onshore production,” the department said in the monthly Short Term Energy Outlook.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, lost 6.88 cents, or 1.5 percent, to $4.3925 per million Btu, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 186,589 as of 2:42 p.m., compared with a three-month average total of 253,000. Volume was 290,332 yesterday. Open interest was 800,607 contracts, compared with the three-month average of 836,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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