Capstone Energy Services


US Gas Futures Fall On Weak Demand View; Off 11.3% On Week

August 30th, 2010

(Dow Jones) – Natural-gas futures settled lower Friday as traders bet that remaining summer demand won’t be enough to support prices in a well-supplied U.S. market.

Gas for September delivery fell 16.6 cents, or 4.4%, to settle at $3.651/MMBtu on the New York Mercantile Exchange, the lowest price for a benchmark contract since September 2009. The September contract expired Friday. Gas for October settled down 13.8 cents, or 3.6%, at $3.705/MMBtu.

“You have a gloom-and-doom scenario playing out right now in natural gas,” said Jay Levine, president of Enerjay LLC, a Portland, Maine, energy brokerage. “Right now, the market has a certain resignation” that demand will continue to weaken, he said.

Gas futures plunged 11.3% this week as summer heat shows signs of ending and hurricane activity fails to threaten offshore production. Futures faced additional price pressure Friday as traders squared positions ahead of expiration of the September contract.

U.S. gas demand typically eases going into the autumn as cooler temperatures reduce the need for gas-fired power plants to keep up with air-conditioning use. Prices have declined steadily in August as traders bet that the summer’s heat-related demand spikes have ended.

“The market keeps probing lower,” said Tom Saal, senior vice president of energy trading with Hencorp Becstone Futures in Miami. “It looks like it’s searching for a floor.”

As for supply, the number of rigs drilling for gas in the U.S. this week is up about 39% from the same week last year, oil-field services company Baker Hughes Inc. (BHI) said Friday. The number of rigs dropped by 12 on the week, to 973. Gas in storage stood at 3.052 trillion cubic feet as of Aug. 20, 6.2% above the five-year average, according to government data.

Storm activity in the Atlantic continues to be on track to miss the key U.S. energy-production region in the Gulf of Mexico. The gulf is home to about 11% of domestic gas output, and prices can rise sharply if storms affect production.

Hurricane Danielle is forecast to continue north away from the gulf, and Tropical Storm Earl is projected to miss the gulf as well. A third storm system, developing behind Earl off the coast of West Africa, has a 70% chance of developing into a tropical cyclone during the next 48 hours, the National Hurricane Center said Friday.

“Hurricane season still has plenty left to it” but market participants seem to have disregarded the chance that storm-induced production outages would severely affect the supply-and-demand picture, Levine said.

FUTURES                   SETTLEMENT                   NET CHANGE
Nymex Sep                     $3.651                                 -16.6c
Nymex Oct                      $3.705                                -13.8c
Nymex Nov                     $4.003                                  -9.0c

CASH HUB                   RANGE                  PREVIOUS DAY
Henry Hub                  $3.62-$3.78               $3.73-$3.89
Transco 65                  $3.71-$3.75               $3.80-$3.89
Tex East M3                $3.98-$4.09               $4.04-$4.13
Transco Z6                  $4.01-$4.15                $4.07-$4.15
SoCal                           $3.42-$3.49               $3.56-$3.63
El Paso Perm              $3.25-$3.38                $3.49-$3.59
El Paso SJ                    $3.18-$3.29                $3.40-$3.47
Waha                           $3.60-$3.48                $3.50-$3.63
Katy                             $3.75-$3.82               $3.82-$3.96


By Matt Day

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