Capstone Energy Services


Futures End Lower On Weather View, Ample Supplies

August 17th, 2010

HOUSTON (Dow Jones) – Natural gas futures finished down Monday, after sinking to their lowest level since May, on a more moderate weather outlook and ample supplies of the fuel in storage.

Natural gas for September delivery on the New York Mercantile Exchange settled 10 cents, or 2.31%, lower, at $4.228 a million British thermal units. The front-month contract fell to a low of $4.182/MMBtu in earlier trading, the lowest intraday level since May 27.

Some weather forecasters are predicting milder weather next week, which could temper demand for natural gas-fired power to cool homes and businesses. Forecasters with the National Weather Service are predicting above-normal temperatures across parts of the Midwest and the Northeast and near-normal temperatures in the South and Southwest from Aug. 21 to Aug. 25.

Pax Saunders, an analyst with Houston-based Gelber & Associates, said that decreased gas demand for cooling and high natural gas output signals to the market “that the price needs to come down.”

In addition, relatively high natural gas inventories were putting pressure on prices. Natural gas in U.S. storage for the week ended Aug. 6 stood at 2.985 trillion cubic feet, 7.9% above the five year average, according to the latest data from U.S. Energy Information Administration. Furthermore, the natural gas rig count, an indicator of where supplies are headed, is on the rise.

“You are bumping up against 1,000 gas rigs right now. Supply is healthy,” said Cameron Horwitz, an analyst with SunTrust Robinson Humphrey in Houston.

The natural gas rig count increased last week to 992 rigs, up nine from the previous week. The gas rig count has increased by 44% from the same week a year ago, according to oilfield services provider Baker Hughes Inc. (BHI). The rig count has surged this year as producers, which have locked in prices on future output, continue to exploit natural gas bearing shale rock formations.

Forecasters are also monitoring the Atlantic basin for storm activity that could threaten supplies from the U.S. Gulf of Mexico, which represents about 11% of domestic gas output. The National Weather Service is tracking an area of disturbed weather moving over the northern Gulf of Mexico. NWS forecasters give the disturbance a 60% chance of tropical cyclone formation.

But Matt Rogers, a meteorologist with the private forecasting firm Commodity Weather Group, said the cluster of thunderstorms is too close to land, which will inhibit future development, and he doesn’t expect it to pose a serious threat to Gulf production.

“It’s a very minor concern,” Rogers said.

FUTURES                   SETTLEMENT                   NET CHANGE
Nymex Sep                      $4.228                                 -10.0c
Nymex Oct                      $4.249                                 -10.1c
Nymex Nov                     $4.456                                  -12.9c

CASH HUB                   RANGE                   PREVIOUS DAY
Henry Hub                  $4.30-$4.40               $4.34-$4.38
Transco 65                $4.28-$4.43                $4.34-$4.43
Tex East M3              $4.69-$4.78                $4.61-$4.69
Transco Z6                $4.78-$4.83                $4.62-$4.68
SoCal                         $3.78-$3.90                $3.82-$3.89
El Paso Perm            $3.85-$3.94                 $3.85-$4.05
El Paso SJ                 $3.65-$3.72                $3.71-$3.73
Waha                          $3.93-$4.06                $3.94-$4.13
Katy                           $4.26-$4.40                $4.31-$4.35


By Jason Womack

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