US natural gas price dips to 2010 low on stock build

07 October 2010 22:25  [Source: ICIS news]

HOUSTON (ICIS)--The NYMEX front-month natural gas contract reached a 2010 low on Thursday as prices sank following the release of a government storage report detailing an ample build in inventories last week.

The November 2010 contract lost 24.8 cents when Thursday's session ended, dropping the benchmark to $3.617/MMBtu. The front-month had not been that low since September 2009.

Hard selling started right after the Energy Information Administration (EIA) showed that total underground natural gas storage in the US grew by 2% in the week ended 1 October.

Aggregate stockpiles moved to 3,499bn cubic feet (bcf), an addition of 85 bcf from the previous week, the EIA said.

The build was 15 bcf more than the 69 bcf injection during the same week of 2009, and above analysts' predictions in the high-70s.

Demand in the retail sector has been lacklustre amid moderate temperatures across the country, explained Pax Saunders, natural gas consultant with Gelber and Associates in Houston.

"We look to be done with major cooling demand (in the southern part of the US) and heating loads are going to be delayed," Saunders explained.

With few positive components on either side of the supply and demand picture to drive price trends, the perception has been to the downside.

"Right now, the natural gas market to sustain any rally will need something to tip over the apple cart. And the current apple cart is too much supply and not enough demand," said Jay Levine, a natural gas broker based in Portland, Maine. "The market needs something more than a one-trick pony to sustain a rally."

The front-month contract, however, has been the casualty of the weak fundamentals as the contango in the December 2010 benchmark has widened to nearly 40 cents. The divide between November and January is at 60 cents.

The growth in stockpiles last week was led by a 53 bcf injection in the east region and the US Gulf area added 32 bcf. Inventories in the west were neutral at 497 bcf.

"Cooling demand in the contiguous US surged in the western time zone, but waned elsewhere," US energy analyst Stephen Schork wrote in his Schork Report. "To wit, overall electricity output fell by 7.5% to 74,316 gigawatt hours. It was the fewest electrons transmitted since the week before the Memorial Day holiday."

The year-over-year deficit continued to erode, with 2010 totals under 2009 by 4.1%. But 2009 proved an anomaly with unprecedented builds, and current inventories were tracking at nearly 7% above the 2005-2009 timestamp.

Natural gas prices are a guide post for chemical commodity values.

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