one minute it's this, and one minute it's thatOCTOBER 11, 2010, 3:20 P.M. ETUS GAS: Futures Hit 1-Year Low On High Supply, Mild Weather
By Matt Day
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Natural gas futures fell to a one-year low Monday as high inventories, weak demand and temperate weather continued to pressure prices.
Natural gas for November delivery settled down 5 cents, or 1.4%, at $3.601 a million British thermal units on the New York Mercantile Exchange, the lowest ending price since September 2009. The benchmark contract is down about 7% in October.
In the coming week, "little in the way of heating demand is seen across the key natural gas cities of the Midwest and Great Lakes along with the major heating oil urban centers of the Northeast and Mid Atlantic," said Jim Rouiller, chief energy meteorologist with Planalytics, in a client note.
With tepid demand for the fuel likely this week, market participants again focused on high supplies. The amount of gas in U.S. storage has increased by more than average in each of the last four weeks, as temperate weather reduced the need for gas-fired electricity to cool homes and businesses and the bulk of winter's heating needs was still weeks away. The oversupply, caused in part by strong production from unconventional shale rock formations, has stifled price rallies and sent futures to their lowest levels for this time of year since 2001.
"Historically, this is the time of year to get long," said Rich Ilczyszyn, a senior market strategist with Lind-Waldock, referring to bets that prices will rise. "But it doesn't match up with the fundamental supply overhang. Nobody's making money right now by going long on gas."
Citing ample supplies and robust production, Morgan Stanley (MS) said Monday that natural gas prices would average $4.00/MMBtu in 2011.
"The natural gas market is fundamentally oversupplied," Morgan Stanley analysts wrote. "Unless and until producers are willing to pare back their drilling efforts, the North American gas market will remain in a fundamentally oversupplied situation."
Drilling activity in the U.S. has increased even as prices have declined by about 40% so far this year. The number of rigs drilling for gas rose by nine last week, to 971, oil-field services company Baker Hughes Inc. (BHI) said Friday.
-By Matt Day, Dow Jones Newswires; 212-416-4986; matt.day@dowjones.com