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Natural Gas Futures Rise on Speculation of Declining Output

Natural gas futures rose for a second day in New York on speculation that Energy Department data indicate that producers are pulling back in response to low prices.

U.S. natural gas production dropped to 71.02 billion cubic feet a day in July, the lowest level since September 2009, the Energy Department said today in a monthly report known as EIA-914. Output may be declining as a 29 percent drop in prices this year cuts into profits for energy companies.

The production data “may have pushed the market a little higher,” said Kent Bayazitoglu, an analyst with Gelber & Associates in Houston. “Production is showing a little bit of a response to prices, which is what the market has been waiting for.”

Natural gas for November delivery rose 1.1 cents, or 0.3 percent, to $3.962 per million Btu on the New York Mercantile Exchange. The contract has dropped 1.2 percent this week.

Production in federal offshore tracts in the Gulf of Mexico declined 2 percent to 5.87 billion cubic feet a day because of maintenance and tropical storms, the government said in the report.

Tropical Storm Nicole is likely to move near or over the northwestern Bahamas tonight, steering clear of energy pipelines and platforms in the Gulf, according to National Hurricane Center forecasts. An area of showers and thunderstorms in the central Atlantic has a 10 percent chance of becoming a tropical cyclone during the next 48 hours. The hurricane season ends Nov. 30.

2010 Hurricanes

The National Oceanic and Atmospheric Administration last month reduced its 2010 Atlantic hurricane forecast to 14 to 20 named storms from an earlier estimate of 14 to 23.

A total of 7.9 billion cubic feet of natural gas production was temporarily shut off because of storms in June, July and August, compared with the Energy Department’s prediction of 57.4 billion for those months

“As far as any production threats to energy interests in the Gulf of Mexico, the probability is very low at least into mid-October,” said Travis Hartman, a meteorologist with MDA Federal Inc.’s EarthSat Energy Weather in Rockville, Maryland. An area of low pressure is preventing storms from entering the Gulf, Hartman said.

Beyond mid-October, wind conditions may prevent storm formation, Hartman said. The statistical peak of the Atlantic hurricane season is Sept. 10.

Below-normal temperatures are likely in the southeastern and south central U.S. from Oct. 4 to Oct. 8, according to MDA. Temperatures across much of the western U.S. and northern Midwest may be warmer-than-normal during that period, MDA said.

About 23 percent of U.S. electricity is generated using natural gas, according to the Energy Department.

Supply Report

Energy Department data scheduled for release tomorrow may show a larger-than-average injection of gas into underground storage. The report may show that 68 billion cubic feet of gas were added to inventories for the week ended Sept. 24, compared with a five-year average of 67 billion, according to the median estimate of 22 analysts surveyed by Bloomberg.

U.S. gas stockpiles totaled 3.34 trillion cubic feet as of Sept. 17, 6.2 percent above the five-year average and 5 percent below last year’s level, according to the Energy Department. Gas inventories have been above five-year average levels since the week ended Jan. 22 amid robust shale-gas production and tepid industrial demand.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 0.56 cent, or 0.2 percent, to $3.8085 per million Btu on the Intercontinental Exchange.

Gas futures volume in electronic trading on the Nymex was 126,244 as of 3:28 p.m., compared with a three-month average of 258,000. Volume was 189,818 yesterday. Open interest was 774,120 contracts, compared with the three-month average of 805,000. The exchange has a one-business-day delay in reporting open interest and full volume data on the Intercontinental Exchange.

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