US GAS: Futures Settle Slightly Lower Amid Ample Supplies
10/30/2009 02:26PM
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Natural-gas futures finished slightly lower Friday as ample supplies of the fuel and a mild weather outlook weighed on the market.
Natural gas for December delivery on the New York Mercantile Exchange settled 1.7 cents, or 0.34%, lower at $5.045 a million British thermal units. The front-month contract fell as low as $4.952 in earlier trading.
Natural gas prices were facing pressure from growing stockpiles of the fuel and booming domestic production, despite an industry-wide pullback in drilling.
"At the end of the day, we are still producing the hell out of natural gas domestically," said Stephen Schork, editor of the energy advisory newsletter The Schork Report.
Analysts noted, however, that a seasonal shift in demand brought about by the approaching winter was helping support prices Friday.
The U.S. Energy Information Administration reported Friday that gross daily natural gas output in the lower-48 states increased to 63.17 billion cubic feet of natural gas in August, an increase of 0.8% from July. The increase occurred amid a sharp decline in natural gas drilling activity.
The number of rigs drilling for natural gas has fallen by more than half over the last year as producers coped with lower prices. But the rig count has begun to stabilize as producers lock in prices on future production and bet on colder weather and an economic rebound that would spur demand for the fuel.
The number of rigs drilling for natural gas in the U.S. climbed to 728 this week, an increase of three rigs from the previous week, according to oilfield services company Baker Hughes Inc. (BHI).
Natural gas stockpiles also stand at record levels. Natural gas in U.S. storage for the week ended Oct. 23 were 3.759 trillion cubic feet - 11% higher than last year and 12.4% above the five year average. Natural gas in storage is expected to approach capacity of about 3.9 trillion cubic feet before winter heating demand begins to draw down those supplies.
Tim Evans, an analyst with Citi Futures Perspective in New York, wrote in a note to clients Friday that prices face downside risk.
"Inventories are still at an all-time high, and the temperature outlook featuring warmer-than-normal temperatures for the central U.S. into mid November suggest further stock builds are possible," Evans wrote.
Meanwhile, the National Weather Service forecast for Nov. 6-12 is calling for warmer than normal temperatures across most of the country and in key heating demand centers in the Midwest and the Northeast. Mild weather can stifle demand for natural gas used to heat homes and businesses.
-By Jason Womack, Dow Jones Newswires; 713-547-9201; jason.womack@dowjones.com