US natural gas inventories build, futures at six-month low

25 March 2010 17:17  [Source: ICIS news]

HOUSTON (ICIS news)--US natural gas inventory levels built for the first time in 2010, according to US government data released on Thursday, pushing already-depressed futures prices below $4/MMBtu for the first time in nearly six months.

Stockpiles of natural gas added 11bn cubic feet (bcf) in the week ended 19 March, according to the Energy Information Administration (EIA).

The build put total US inventory at 1,626 bcf, 1.7% below the same time last year but 8% above the five-year average.

"How quickly we can overcome what people deem as a terrible winter and be full up on storage rather quickly," said Michael Rose, director of trading at brokerage firm Angus Jackson in Fort Lauderdale, Florida.

"The truth is that in one or two or three weeks we'll be above five-year averages... and without an interruption prices could go markedly lower," Rose said.

In past years, natural gas inventories have shown a draw rather than a build at this time, according to energy analyst Stephen Schork.

Market analysts had predicted the increase in stockpiles, but the US market's early entrance into the storage building season underscored the fuel's weakness.

Sporadic signs of economic recovery, forecasts of above-normal temperatures in the US northeast and the continual climb in domestic rig counts had front-month futures prices under $4 before the 10:30 hours New York time (14:30 hours GMT) release of the storage report.

The front-month futures contract was last under the $4/MMBtu mark in the last week of September 2009 when inventory levels set record-highs.

As of 11:06 hours New York time, the April natural gas contract on the NYMEX was trading at $3.950/MMBtu, a 15.5 cent fall from the day before. The May contract was down 15.6 cents, trading at $3.998/MMBtu.

The futures price is also more than 30% below the 2010 peak just above $6/MMBtu in early January.

Since then, gas rigs operating in the US have risen by 20%. As of last week, gas rigs totalled 939, up 12 from the previous week and 158 higher than the first week of 2010, according to data from oil and gas field services company Baker Hughes.

At the same time, industrial demand has lagged and only a frigid and snowy January supported any upward move in prices.

"Without an economic recovery, we're really going nowhere," Rose said. "If we get more than one week of positive economic data showing that we are really in recovery mode and that's the thing that natural gas needs to really go higher."

Natural gas prices are important indicators for chemical commodity values due to the fuel's wide use as a feedstock and power supply.

In addition, as natural gas prices continue to be low in comparison with crude oil, chemical makers are capitalizing on the cheaper feedstock and switching crackers to lighter feeds.

But Rose said, looking into the future, that there is a caveat in the natural gas market that could cause an immediate spike.

"No matter how much we stockpile," he said, "one little disruption from a hurricane and you could be trading $6 in a hurry."

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By: Ryan Hickman
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