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US Natural Gas Extends Losses On Weak Manufacturing Data

May 18th, 2011

NEW YORK (Dow Jones) – Natural-gas futures fell sharply Tuesday, extending earlier losses after a report showed U.S. manufacturing production fell for the first time in 10 months.

Natural gas for June delivery recently traded down 1.31 cents, or 3%, to $4.187 a million British thermal units on the New York Mercantile Exchange.

The manufacturing sector accounts for one-third of U.S. natural-gas demand, and any signs of a slowdown tends to pull the price lower.

The Federal Reserve said industries used 76.9% of their capacity last month, down 0.1 percentage point from the revised 77% March figure. Manufacturing capacity utilization dropped 0.4 percentage point to 74.4%.

Economists surveyed by Dow Jones Newswires had forecast a 0.3% increase in output and a capacity utilization rate of 77.6%.

“That report has quite logically engendered some negative price action in the natural-gas market,” said Jason Schenker, president of Prestige Economics in Austin, Texas.

Natural-gas prices had started the day lower, reversing much of Monday’s gains as market participants awaited a clearer picture of weather-driven demand this summer. Forecasts continue to call for below-normal temperatures for most of the next five days–little-changed from Monday–followed by a return to above-normal temperatures in the central and eastern U.S., according to Tradition Energy.

“We are going to see a return of some hot weather, but not strongly enough to generate elevated cooling use, so we’re stuck in the middle of this range,” said Gene McGillian, broker at the Stamford, Conn., firm.

Natural-gas futures have wobbled between $4 and $4.35 a million British thermal units since May 5, when a sell-off across the commodities market sent the contract tumbling from highs above $4.70. Since then, the market has seen
an exodus of speculative traders, keeping prices under pressure, McGillian said.

Traders will also be awaiting further cues from Thursday’s report on U.S. gas inventories, which stand at 2% below the five-year average and 12% less than 2010 levels.

Supplies, however, are expected to grow strongly in the coming weeks. The U.S. Energy Information Administration said last week it expects working gas inventories to build “strongly” during summer and approach record highs in the
second half of 2011.

“With weather-related demand representing a non-event for a few more weeks, we still see sideways trade into early June,” said Jim Ritterbusch, head of the trading advisory firm Ritterbusch & Associates in Galena, Ill.

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By Dan Strumpf

Glossary Terms

Glossary Terms

Nominated Volume

The physical quantity of gas requested, typically in MMBtu/day, for a specific contract or for all contracts at a specific point.

Marketing Affiliate

A marketing company that has corporate ties to an interstate pipeline, an intrastate pipeline, or a local distribution company.

Energy Only Providers

Power marketers or other electricity vendors who provide and bill for only the energy component of the electricity consumed by the end-use customer.

Therm

A unit of heating value equivalent to 100,000 British thermal units (Btu).

Real Power

The component of electric power that performs work, typically measured in kilowatts (kW) or megawatts (MW)--sometimes referred to as Active Power.

Injection (Storage)

The process of delivering natural gas into a storage field for future delivery and use.

Price Ceiling

Statutory maximum lawful prices for various categories of natural gas, including gas destined for both the intrastate and interstate markets.

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Energy & the Environment

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  • Initiate and manage a "Green" energy procurement program
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