Feb. 4 (Bloomberg) -- Natural gas futures rose to a two-week high in New York on forecasts that a government report tomorrow will show the biggest weekly inventory drop so far in the winter heating season.
Stockpiles declined 196 billion cubic feet last week, based on the median of 12 analyst estimates compiled by Bloomberg. The five-year average drop for the week is 183 billion, Energy Department data show. Gas supplies tend to decrease during the winter, when demand exceeds production and imports.
“In the short term, there’s a bullish withdrawal expected tomorrow,” said Michael Rose, a director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “And you have to start taking into consideration that production has been cut.”
Natural gas for March delivery rose 8.4 cents, or 1.9 percent, to settle at $4.597 per million British thermal units at 2:57 p.m. on the New York Mercantile Exchange, the highest closing price since Jan. 22. Gas has fallen 18 percent this year and is down 66 percent from the 2008 high of $13.694 on July 2.
Cuts in gas exploration and production will begin to show up in supplies later this year, when the U.S. economy may start to recover, Rose said.
There were 1,150 gas rigs operating in the U.S. for the week ended Jan. 30, down from 1,606 in the week ended Sept. 12, which was the highest since at least July 1987, according to Baker Hughes Inc. data.
Reduced exploration leads to lower production because new fields are needed to maintain output levels.
The price for gas also appears to be at a bottom, making it attractive for large consumers to make purchases now to lock in prices, Rose said.
Contango
Natural gas for delivery in December is trading at a premium of about $1.76 to March. When prices for future delivery are higher than near-month contracts it’s a situation known as contango, which encourages companies to put supplies in storage now for use later in the year.
The spread between the March and December 2008 contracts a year ago was 96.2 cents.
“Gas is a bargain right now,” Rose said.
Prices may stay in a range of $4.30 to $4.70 per million Btu in the coming weeks until it becomes clearer when the economy will begin its recovery and production cuts start to trim supplies, said Stephen Schork, president of Schork Group Inc. of Villanova, Pennsylvania.
“We will get to the moment where demand will cross back up over supply because there is a tremendous amount of supply destruction now with the rig counts well below recent norms,” he said. “All of the marginal production that was profitable at $6, $7 or $8 is going to be shelved.”
Gas Production
U.S. production expanded 5.9 percent through the first 11 months of 2008 compared with the same period a year earlier, the Energy Department said in its monthly report on natural gas, released Jan. 30.
Supply growth in 2009 may slow to 0.7 percent, the department said last month in its Short-Term Energy Outlook.
A report today suggested the rate of decline of the U.S. economy may be easing. U.S. service industries contracted at a slower pace than forecast, according to the Institute for Supply Management’s index of non-manufacturing businesses, which make up almost 90 percent of the economy.
The index rose to 42.9 from 40.1 in December. Readings below 50 signal a contraction in the economy.
MAE Price at posting:
26.5¢ Sentiment: ST Buy Disclosure: Held
