US natural gas futures turn positive despite big stock build

28 October 2010 22:46  [Source: ICIS news]

HOUSTON (ICIS)--US natural gas futures prices ended the day in positive territory as another large build in US natural gas storage last week put 2010 on par with last year's record-setting inventory levels, the US Energy Information Administration (EIA) said in its weekly storage report on Thursday.

Aggregate storage grew by 71bn cubic feet (bcf), or 2%, and reached 3,754 bcf.

Last week's total is only 1 bcf lower than last year's figure during the corresponding week when stockpiles grew by only 25 bcf.

With only a handful of injection weeks left in the year – 2009's first storage draw did not occur until well into December – 2010 levels are on a path to test last year's record peak of 3,837 bcf.

But the looming supply overhang was only temporarily factored into the NYMEX futures trading session, which added 12.7 cents on the first day the December contract traded as the prompt benchmark.

The front-month contract sold off quickly following the EIA's release of the storage scorecard but reversed trend before taking off as the session closed at $3.890/MMBtu.

"With November off the board and trading the December contract, we may have run out of sellers," explained Addison Armstrong, director of research for Tradition Energy in Samford, Connecticut. "The risk/reward is definitely weighted to the upside."

A typically premium winter contract would have a hard time dropping into the $3.30/MMBtu and investors taking a real profit from shorting current December prices, Armstrong said.

"I think the market realises that not a lot of people here are ready to sell the December in the face of that reality," Armstrong said.

But weather forecasts continue to show above-average temperatures for the high-demand sectors of the US into January.

The unseasonably mild temperatures have choked out need for natural gas in the heating sector, and in turn, suppressed prices.

"Weather demand in the contiguous US was light last week with only a brief appearance of cooling demand in the central and eastern market areas," energy analyst Stephen Schork wrote in his daily newsletter The Schork Report.

"Electricity output, nationwide, inched down by 1.1% to 70,093 gigawatt hours. It was the fewest electrons transmitted for the coincident week since 2003 and 2.2% below a year ago," said Schork.

Natural gas prices are a barometer for chemical commodity prices with its use in power generation and as a feedstock.

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