July 16 (Bloomberg) -- Natural gas futures dropped for the fourth time this week on concern that supplies of the power- plant and factory fuel are ample to meet demand during a sluggish economic recovery.
Gas lost as much as 2.5 percent after Baker Hughes Inc. data showed the number of U.S. drilling rigs rose to the highest level in almost 17 months this week. Goldman Sachs Group Inc. cut its forecast for gas prices in the second half of this year by 17 percent, citing surging U.S. production.
“People are looking at this market and understand that there are too many rigs working and production is too high,” said Scott Hanold, an energy analyst at RBC Capital Markets in Minneapolis. “There is concern that prices in the next couple of years could be pretty soft.”
Natural gas for August delivery dropped 6.7 cents, or 1.5 percent, to settle at $4.519 per million British thermal units on the New York Mercantile Exchange. The futures have fallen 19 percent this year.
U.S. gas drilling rigs rose 15 to 979 this week, the highest level since Feb. 20, 2009, according to Baker Hughes Inc. Horizontal rigs, which are mostly used in drilling for shale gas, declined for the first week in 10, down four to 859.
Goldman cut its forecast for gas prices in the second half to $4.63 per million Btu, analysts including David Greely said in a research report. The company reduced its estimate for 2011 prices to $5.25 from $6.
“U.S. natural gas production continues to surge this year, driven by the shale gas revolution,” Goldman said in the report.
Production Estimates
Output will average 61.26 billion cubic feet a day this year, up 2.1 percent from 59.98 billion in 2009, the Energy Department said last week.
The government “projects a continuing decline in Gulf of Mexico production, which is offset by gains in onshore production,” the department said in its monthly Short Term Energy Outlook.
Gas inventories this year will “remain very near last year’s levels” and stockpiles will reach 3.81 trillion cubic feet by the end of October, the department said in the outlook. Supplies rose to a record 3.837 trillion cubic feet on Nov. 27.
Prices gained 6.5 percent yesterday, the most in more than six months, after an Energy Department report showed a smaller- than-forecast inventory increase.
Supply Report
Gas stockpiles gained 78 billion cubic feet in the week ended July 9 to 2.84 trillion, the department said. Analysts surveyed by Bloomberg expected an increase of 80 billion. The five-year average increase is 89 billion.
“Looking forward, given where production is, I don’t see much upside to gas prices unless we reset the dial with a lower rig count,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.
Temperatures will be above average in the U.S. East Coast and Midwest next week, according to the National Weather Service.
New York will have a high of 90 degrees Fahrenheit (32 Celsius) on July 21, 5 degrees above average, according to AccuWeather Inc. Chicago’s temperature is forecast to hit 90.
New York saw 103 degrees Fahrenheit on July 6, a record for the date, according to the National Weather Service.
About 22 percent of electricity is generated using natural gas, Energy Department figures show.
Cooling requirements in the U.S. will be 27 percent higher than normal from tomorrow through July 23, according to Weather Derivatives of Belton, Missouri.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 25.1 cents, or 5.7 percent, to $4.6788 per million Btu on the Intercontinental Exchange.
Gas futures volume in electronic trading on the Nymex was 207,044 as of 2:47 p.m., compared with a three-month average total of 251,000. Volume was 414,981 yesterday. Open interest was 788,096 contracts, compared with the three-month average of 834,000. The exchange has a one-business-day delay in reporting open interest and full volume data
Coppied by http://www.businessweek.com/news/2010-07-16/natural-gas-declines-on-concern-production-will-exceed-demand.html
No comments:
Post a Comment