Thursday, August 6, 2009

Natural Gas Supplies Come in Higher

In the weekly report that always seems to move prices 5% one way or the other, the natural gas supply report showed a higher than expected supply in natural gas. Here's the story from Bloomberg:

Natural gas futures fell the most in two months after a government report showed a bigger-than- estimated increase in U.S. stockpiles. Supplies in storage gained 66 billion cubic feet in the week ended July 31 to 3.089 trillion cubic feet, the Energy Department said. Analysts forecast a gain of 61 billion. The total was a record for late July, based on weekly department data going back to 1994.

“We have a lot of supply and it really weighs on the market,” said Phil Flynn, vice
president of research at PFG Best in Chicago. “The dollar is also a little firmer, so with the bearish storage report, natural gas is having a tough time hanging on.”

Natural gas for September delivery fell 26.6 cents, or 6.6 percent, to $3.776 per million British thermal units at 11:15 a.m. on the New York Mercantile Exchange, the biggest one-day decline since June 3. The fuel was trading at $3.945 before the report was released at 10:30 a.m. in Washington. Gas has declined 33 percent this year.

A stronger dollar makes commodities less attractive to some investors, prompting them to sell holdings of natural gas, oil and metals.

Stockpiles were 19 percent higher than the five-year average last week. The average supply increase for the week over the past five years is 48 billion cubic feet, according to department data.

The shutting of a Gulf of Mexico pipeline by Enterprise Products Partners LP propelled prices higher yesterday, Flynn said. Gas had advanced 11 percent this week through yesterday. “Even with these outages, it’s just another reminder that we have a lot of supply,” he said. Stockpile Glut

A glut of gas in storage may persist longer than anticipated as some of the largest U.S. natural gas producers increase output.

XTO Energy Inc. and Devon Energy Corp., two of the five largest producers of U.S. gas, yesterday reported record output and smaller declines in earnings than analysts estimated. Anadarko Petroleum Corp., London-based BP Plc and Chesapeake Energy Corp. previously reported second-quarter output gains that helped them beat estimates.

The National Oceanic and Atmospheric Administration today cut the number of Atlantic hurricanes it expects this year to a range of three to six of the storms. In May, NOAA predicted a “near-normal,” 2009 Atlantic season, with four to seven hurricanes, out of a range of nine to 14 named Atlantic storms it expected at the time. The agency now forecasts a range of seven to 11 named storms.

Slow Hurricane Season
The Atlantic has yet to produce a named storm this season, which runs from June 1 to Nov. 30. This is the longest the Atlantic has gone without a named storm since 1988. A reduced risk of hurricanes lessens the chance that oil and gas production will be disrupted at offshore platforms in the Gulf of Mexico.

Demand for natural gas may lag behind the overall recovery in the U.S. economy next year, Biliana Pehlivanova and Michael Zenker, analysts at Barclays Capital said in report on Aug. 4. Barclays Capital expects the U.S. economy to expand 2.9 percent next year. Prospects for gas-intensive industries of chemicals, petroleum, coal products, primary metals and food industries, which account for 65 percent of demand, “are more muted,” the report said.

Industrial demand should rise 1.9 percent to 16.9 billion cubic feet a day in 2010, the analysts said.

Overall U.S. gas consumption may contract by 2.3 percent this year as the recession that began in December 2007 cuts demand, the Energy Department said on July 7. Gas demand at factories is forecast to tumble 8.2 percent.

I'm not reading much into this report. I'm not 100% convinced we need weekly supply reports on these commodities, but it helps to track trends. Also keep in mind that you can't put too much into one report. Last week, supplies came in lower than expectations and gas went up. The trend still points to higher supply which will take time to work out. I posted a couple of days ago that Chesapeake CEO Aubrey McClendon sees 2010 as a much better year for natural gas, with prices between $6-$8.

Disclosure: Long UNG


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