Natural Gas Drops to 13-Month Low

Source: Bloomberg, Moming Zhou (10/21/10)

"A few weeks of injections may see storage break last year's record."

Natural gas futures dropped to the lowest price in 13 months after a government report showed U.S. inventories rose more than expected last week.

Gas stockpiles increased 93 billion cubic feet (bcf) in the week ended Oct. 15 to 3.683 trillion, the DOE said today. Analyst estimates compiled by Bloomberg before the report showed an expected gain of 89 billion, a Bloomberg users' survey showed an increase of 86 bcf.

"There is lots of gas in storage and demand is stagnant," said FirstEnergy Capital Analyst Martin King, "We've got more than enough to deal with the winter."

Natural gas for November delivery fell 4.5% to $3.381 per million British thermal units (btu) at 12:01 p.m. on the Nymex. Prices touched $3.372—the lowest intraday price since Sept. 16, 2009. Gas traded at $3.491 before the report was released at 10:30 a.m.

The $2.4 billion U.S. Natural Gas Fund fell as low as $5.39/share, the lowest since it began trading in April 2007.

Last week's storage increase was bigger than the five-year average gain for the week of 54 bcf, department data show. A surplus to the five-year average rose to 8.4% from 7.4% the previous week. A deficit to year- earlier supplies narrowed to 1.3% from 3.2%.

November Supplies

Storage gains "could continue into November," said Energy Security Senior Analyst Chris Kostas. "Give it an extra couple of weeks of injections, and it's possible that storage will break last year's record."

"Whether injections or withdrawals take place in November is very dependent on the weather," said DOE Gas Analyst Alex King. "If November is relatively mild, we'll see continued injections. If it is cold, there'll be withdrawals."

The number of U.S. gas drilling rigs totaled 966 last week—34% higher than a year earlier, according to data from Baker Hughes.

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