Capstone Energy Services


US Gas Futures Pull Back After Touching 3-Month Highs

May 3rd, 2011

NEW YORK (Dow Jones) – Natural gas futures ended near the unchanged mark Monday, falling slightly as traders cashed out after the market reached three-month highs for a third consecutive session.

Natural gas for June delivery settled 0.5 cent, or 0.1%, lower, at $4.693 a million British thermal units on the New York Mercantile Exchange.

Gas futures climbed by 6.5% last week as a third consecutive smaller-than-expected weekly build in inventories suggested that market participants had underestimated demand, lifting sentiment in the well supplied U.S. market.

The momentum carried into Monday, with the benchmark contract posting three-month highs at $4.729/MMBtu before traders cashed out to profit from the gains.

Last week’s rally had likely accounted for the higher-than-expected gas use, making the market due for a pullback, Gelber & Associates analyst Pax Saunders said in a client note.

“There’s little fundamental support here,” Saunders wrote. “This exuberance has to break down sooner or later.”

Gas use typically reaches a seasonal low in the spring, as comfortable weather leaves less need for the fuel to cool or heat homes and businesses. But maintenance at U.S. nuclear power plants and some early season air-conditioning
needs have lent support to gas prices.

“It turned out that [spring] demand was pretty strong,” said Mu Li, a commodities analyst at CPM Group. “Unless we see a sharp shift in market sentiment, prices may be still supported at this level.”

An unusually large amount of U.S. nuclear power generation capacity was offline in late April. Natural gas-fired power stations are frequently called upon to pick up the slack when nuclear plants go offline.

Market participants said the gas-price support may be fleeting as idled nuclear plants return to service this month.

Meanwhile, the Energy Information Administration last week said U.S. natural gas inventories as of April 22 stood at 1.685 trillion cubic feet, more than 11% below 2010 levels after a smaller-than-expected weekly build. The report
sent some market participants who had bet prices would fall scrambling to buy back those positions, pushing futures higher on the day.

The buying continued Friday as the EIA reported U.S. natural gas production in the lower 48 states fell in February for a second consecutive month. Gross natural gas production on the month stood at 65.49 billion cubic feet a day, down from an upwardly revised 66.78 Bcf a day in January, the EIA said in a closely watched monthly report.

The EIA said cold weather reduced production across much of the south-central U.S., while maintenance and repairs in the Gulf of Mexico cut output in that region.

FUTURES                    SETTLEMENT                     NET CHANGE
Nymex June                     $4.693                                   -0.5c
Nymex July                      $4.763                                  +0.2c
Nymex Aug                       $4.807                                  +0.5c

CASH HUB                     RANGE                      PREVIOUS DAY
Henry Hub                   $4.57-$4.65                     $4.45-$4.55
Transco 65                   $4.55-$4.63                     $4.45-$4.49
Tex East M3                 $4.80-$4.95                     $4.81-$4.67
Transco Z6                   $4.82-$4.93                      $4.70-$4.82
SoCal                            $4.54-$4.68                      $4.42-$4.50
El Paso Perm               $4.39-$4.48                      $4.30-$4.38
El Paso SJ                    $4.38-$4.46                       $4.25-$4.33
Waha                            $4.47-$4.53                       $4.35-$4.45
Katy                              $4.50-$4.57                       $4.43-$4.49


By Matt Day

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