US natural gas futures fall below $4/MMBtu on big stock build

15 April 2010 21:13  [Source: ICIS news]

HOUSTON (ICIS news)--US natural gas futures tanked on Thursday, as prices dropped below $4/MMBtu following a government storage report that showed a substantial build in inventories last week.

The Energy Information Administration (EIA) reported that underground storage rose by 87bn cubic feet (bcf) in the week ended 9 April, putting aggregate stockpiles at 1,756 bcf.

Most analysts had anticipated a build in the 80s bcf, but by hitting the high end of expectations as well as gaudy historical numbers posted across the board, traders dropped the front-month contract to the lowest level in a week.

"The historical norm for early April is a 17 bcf injection and the market usually does not see an 80 bcf injection for at least a few more weeks," energy analyst Stephen Schork wrote in his newsletter The Schork Report. "In other words, an 80 bcf injection is tremendous."

By the end of the NYMEX trading session, the May natural gas contract was at $3.985/MMBtu, a drop of 21.4 cents. The front-month contract last finished a session below $4/MMBtu on 8 April.

The second-month contract also sank, falling 22.1 cents to settle at $4.074/MMBtu.

The price of natural gas is an important bellwether of chemical commodity pricing with its widespread use as a fuel source and feedstock.

Martin King, analyst with FirstEnergy Capital investment bank in Calgary, said there are some signs of demand for natural gas, but they remain minimal.

"The only real support for this market is coming from the power generation sector on low prices promoting some coal-to-gas switching, but also from nuclear power plants heading to their seasonal low for output on maintenance," King wrote in a note to investors.

The EIA's injection number overshadowed a hint of positive news for natural gas, with the US Federal Reserve reporting industrial production in March inched up by 0.1% month over month.

Output in the first quarter was up by 7.8% year over year, but compares with a timestamp that many consider the economic trough of the recession last year.

Factory production in the first quarter also increased, at a rate of 6.6% versus 2009.

But even with the green shoots in demand, analysts foresaw natural gas inventories adding to levels that were 3.8% above last year and 16.3% higher than the five-year average.

"Although there are real signs of some revival in industrial gas demand," King wrote, "there are just no real catalysts at this stage to put the brakes on strong storage injections."

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By: Ryan Hickman
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