Natural Gas Gains in New York After Yesterday’s Six-Year Low

By Reg Curren

April 28 (Bloomberg) -- Natural gas futures rose for the first time in four days, rebounding from the lowest price in more than six years on the May contract’s last day of trading.
Gas futures have tumbled 76 percent from a high in July as weakening demand during the recession slashes demand for the industrial and power-plant fuel. Prices yesterday fell to the lowest since September 2002.

“Gas is experiencing another one of its spasmodic moves higher after posting another new low,” Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York, said in note. “That is what is to be expected from an oversold market. The fundamentals are overwhelmingly bearish.”

Natural gas for May delivery rose 4.7 cents, or 1.4 percent, to $3.30 per million British thermal units at 12:30 p.m. on the New York Mercantile Exchange. Futures fell to $3.155 per million Btu yesterday.

The more actively traded June futures contract gained 4.5 cents, or 1.3 percent, to $3.407 per million Btu. All of the warm-weather gas futures contracts, May through November, were higher as of 12:30 p.m.

“We got some solid air-conditioning demand over the weekend in the Northeast,” said Stephen Schork, president of the Schork Group Inc., an energy markets consulting company, in Villanova, Pennsylvania. “The weather is a little bit supportive.”

Schork said utilities may be taking advantage of low prices now, anticipating an increase once higher temperatures kick in during the U.S. summer that would boost demand for electricity from gas-fired plants to power air conditioners.
“Why wouldn’t you buy gas now?” said Schork.
Hot Weather

New York is forecast to reach a high of 89 degrees Fahrenheit (32 Celsius) today, 24 degrees above normal, according to the U.S. National Weather Service. Temperatures are expected to return to near normal tomorrow, with highs in the low to mid-60s.

A reduction in supplies throughout 2009 is setting up natural gas prices to move higher, especially with a slight recovery in the economy anticipated in the second half of the year, said Peter Linder, an analyst at DeltaOne Energy Fund in Calgary.

“The main reason to be optimistic is the significant and consistent decline in drilling activity,” Linder said. “That has got to translate, imminently, to lower production.”

Natural gas prices may dip toward $3 per million Btu, though they won’t stay there for long as producers will shut in more output at that level, said Linder, who anticipates a price rally to between $4.50 and $5 by the end of the summer.

The number of gas rigs operating in the U.S. has dropped 54 percent since September as prices collapsed, data published by Baker Hughes Inc. showed.

Gas rigs fell by 18, or 2.4 percent, to 742 last week, the lowest since the week ended Feb. 7, 2003. The count is down from a peak of 1,606 on Sept. 12.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.