By RYAN DEZEMBER
HOUSTON—Natural-gas futures dipped below $4 per million British thermal units for the first time in a month on Friday, though they eventually halted their weeklong skid and ended the session a shade higher.
Hopes for a midwinter rally were dashed this week, as prices traded as low as $3.951 a million British thermal units on the New York Mercantile Exchange, after reaching a four-month high of $4.637 on Dec. 9. The benchmark contract ended Friday up 0.4% at $4.066.
The reversal has come amid the coldest stretch yet to hit this winter and news Thursday that U.S. gas inventories saw their largest draw down of the season, 164 billion cubic feet, the week ended Dec. 10.
Ultimately, however, domestic supplies remain bloated, standing at nearly 10% above the five-year average at 3.561 trillion cubic feet.
Market participants are realizing this winter that home heating needs are not enough to offset soaring production and significantly reduce supply, said Michael Rose, head of trading at Fort Lauderdale, Fla., based Angus Jackson Inc.
"It can get as cold as it wants," Mr. Rose said. "Even if everybody turned their heat up to 85 degrees it's not going to make that much difference."
Prices will have a hard time breaking away from $4 a million British thermal units until the broader economy rebounds and demand from manufacturers and utilities increases, Mr. Rose said. Industrial gas use, whether it be used to heat facilities, generate power or manufacture chemicals, has fallen to an estimated 18.2 billion cubic feet per day this year from 22.2 billion cubic feet a day in 2000, according to a Friday report by Houston energy analysts at Simmons & Co. "Far weaker prices" are ahead unless drilling is "dramatically" reduced, Simmons & Co. says.
In a Barclays Capital survey of 402 natural gas companies released this week, 100 producers said they would trim spending in 2011 if gas prices fell to $4 a million British thermal units. More then half of the respondents said they would cut back if gas reached $3.50 a million British thermal units. The average price forecast companies said they used to draft their spending plans was $4.27 a million British thermal units.
But publicly many companies have signaled that output will continue at its torrid pace regardless of low prices.
Chesapeake Energy Corp., the second-largest producer of natural gas in the U.S., said that although it will shift up to two-thirds of its budget toward oil production by 2012, it expects its proved gas reserves of 17 trillion cubic feet to balloon by as much as 40% by the end of that year as the company's joint venture partners fulfill contractual drilling obligations.
Quicksilver Resources Inc. , Southwestern Energy and Goodrich Petroleum Corp. have each told investors expect double-digit percentage increases in gas output next year.
"These guys are obviously getting pinched on the margins yet the gas rig count remains around 950," said Cameron Horwitz, an analyst with Canaccord Genuity in Houston. "Eventually production's got to fall back—demand just can't keep up with the kind of numbers that you're seeing."
This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured site: So, Why is Wikileaks a Good Thing Again?.
Source: "Natural Gas Prices" via Glen in Google Reader
No comments:
Post a Comment