US natural gas futures up 30 cents on large supply draw

17 December 2009 17:07  [Source: ICIS news]

HOUSTON (ICIS news)--US natural gas supplies delivered 207bn cubic feet (bcf) from storage last week, the Energy Information Administration (EIA) said on Thursday, a deeper-than-expected draw that sent NYMEX futures climbing by more than 30 cents.

The US natural gas market officially moved into the withdrawal, or delivery, season as total domestic stockpiles whittled down to 3,566 bcf compared with 3,773 bcf in the previous week.

US energy consulting firm Tradition Energy estimated today's delivery at 190 bcf based on market predictions. The hefty delivery number last week sparked a precipitous jump in January contracts.

As of 11:18 New York time (16:18 GMT), shortly after the EIA report's release, futures prices were trading at $5.798/MMBtu, up 33.6 cents.

Michael Rose, director of trading at brokerage firm Angus Jackson in Fort Lauderdale, Florida, said today's rally might be a knee-jerk reaction to several factors.

"Between the merger on Monday (ExxonMobil's acquisition of XTO Energy) and the cold weather, it exacerbated the move just a tad and natural gas has gotten a little bit ahead of itself," Rose said. "We don't go from being so well supplied with so little demand to the counter of that in a week's time."

Despite the deep draw, natural gas storage levels are 12% higher than a year ago and nearly 14% above the five-year average, according to EIA data.

However, last week's delivery was historic.

"The largest delivery posted for this week, 175 bcf, occurred for the week ended 15 December 1995 according to derived estimates from the EIA and the American Gas Association," Stephen Schork wrote in his daily energy newsletter The Schork Report. "As such, the market’s consensus of a record delivery for last week has certainly been priced into this week’s NYMEX rally."

Rose said natural gas prices flirting with $6/MMBtu is unrealistic while the economy struggles to recover.  

"I think the $6 area is a little too high right now," he said. "I believe we should be at 5.25 and stay at that level until we see industrial demand, which we haven't seen yet. Until the economy recovers, prices are going to go down."

Natural gas is a feedstock and major power fuel for the US petrochemicals industry and downstream chemicals manufacturers.

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By: Ryan Hickman
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