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Natural Gas Surges most Since 2006

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May 08, 2009 – Comments (0) | RELATED TICKERS: NGS

Natural Gas Advances Toward Biggest Weekly Gain Since 2006

By Reg Curren

May 8 (Bloomberg) -- Natural gas futures surged, capping the biggest weekly gain in more than two years, amid signs the worst of the recession has passed and demand for the industrial fuel may begin to pick up.

Gas gained as a U.S. Labor Department report showed employers cut fewer jobs in April, adding to speculation that the economic slump is easing and demand for fuel will recover. Factories and power plants account for 58 percent of U.S. consumption. Crude oil also jumped.

“Gas has clearly been sucked along in an incredibly powerful move in commodities across the board,” said Tom Orr, research director at Weeden & Co., a brokerage in Greenwich, Connecticut. “The market has made up its mind that we’ve seen a bottom now. Energy has caught everyone by surprise.”

Natural gas for June delivery rose 14 cents, or 3.4 percent, to $4.221 per million British thermal units at 12:11 p.m. on the New York Mercantile Exchange. The weekly gain of 19 percent is the largest since October 2006. Crude oil for June delivery advanced 94 cents, or 1.7 percent, to $57.65 a barrel.

Gas has declined 69 percent since reaching a 2008 high of $13.694 per million Btu on July 2 as factories were idled because of sliding demand. The U.S. economy shrank at annual rates of 6.1 percent in the first quarter and 6.3 percent in the final three months of 2008, cutting industrial gas consumption.

‘Discounted All of This’

“The market had been obsessing about the whole cycle of low industrial demand, no weather coming, no demand and stocks continuing to grow,” said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. “We’ve now discounted all of this. We know we’ll have plenty in storage by next winter, but by the time we get there we’ll have a lot more demand, at least on the horizon.”

A decline in gas drilling rig counts will also clip supplies later this year, Beutel said.

The number of gas rigs operating in the U.S. has fallen 54 percent since September as prices tumbled, data published by Baker Hughes Inc. show. The number, which dropped by one last week to 741, is scheduled to be updated today.

Natural gas production in the U.S. is forecast to be 5.4 percent lower in the fourth quarter of this year compared with the same period in 2008, according to a report from the Energy Department on April 14.

Technical Bounce

Orr said part of the gain for gas futures can be attributed to technical buying by traders after the fuel punched above the 50-day moving average earlier this week. This week is the first time since November with multiple closes above the 50-day moving average, he said.

“We got a technical bounce that was more powerful than I thought it would be,” he said. “A lot of cash moved into the space very quickly. A lot of people are buying stuff off of charts and turnarounds.”

Technical analysts use moving averages, which show the average of prices over a given time period, to help make buy and sell decisions.

The dip to $3.155 per million Btu on April 27, the lowest since September 2002, appears to be the floor for now, Orr said.

“The fundamental picture for gas hasn’t changed at all, storage is very cramped,” he said. “In a week, people will start to focus on that and gas will be back at $3.60 or $3.70.”

U.S. gas supplies jumped 95 billion cubic feet to 1.918 trillion in the week ended May 1, a report from the Energy Department showed yesterday. Inventories were 23 percent higher than the five-year average, unchanged from last week’s report. The average change over the past five years is an increase of 68 billion cubic feet.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

Last Updated: May 8, 2009 12:21 EDT

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