By Christine Buurma, Naureen S. Malik and Matthew Brown - Apr 26, 2012 8:02 AM CT
U.S.
natural gas for delivery this fall is trading at a record premium, signaling the fuel may be poised to rebound from its worst quarter in two years because of production cuts and rising demand from
power plants.
Gas futures for delivery in October traded at an all-time high of 48.1 cents per million British thermal units above the May contract on April 11, when prices dropped below $2 per million British thermal units for the first time since 2002. The spread was 19.7 cents on Jan. 30. Near-month gas may rebound to $4 “relatively quickly,” Goldman Sachs Group Inc. said in an April 24 report.
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Natural Gas to Climb as Goldman Sees Output Cuts
Natural gas is flared at a crude oil well site owned by Fidelity Exploration & Production Co., a subsidiary of MDU Resources Group Inc., outside South Heart, North Dakota.
Natural gas is flared at a crude oil well site owned by Fidelity Exploration & Production Co., a subsidiary of MDU Resources Group Inc., outside South Heart, North Dakota. Photographer: Daniel Acker/Bloomberg
Prices have tumbled 31 percent this year as the fourth- warmest winter on record crimped demand and output from shale formations increased. Energy companies including ConocoPhillips and Encana Corp. (ECA) have responded with production cuts, reducing the chances that supplies will overwhelm storage before winter. Demand for gas from power plants will climb 16 percent in 2012, according to the Energy Department.
“We’re going to see production curtailments and an uptick in power demand this summer that will prevent us from reaching maximum storage capacity,” said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. “Short-term gas contracts can take a beating, but investors have a more constructive view of longer-term contracts.”
Natural gas for May delivery increased as much as 6.9 cents to $2.137 per million British thermal units in electronic trading today on the New York Mercantile Exchange, and traded at $2.12 per million Btu at 8:57 a.m. That follows yesterday’s gain of 4.7 percent, the biggest since Feb. 16, and brings this week’s increase to 10 percent. The spread between May and October futures was 40.7 cents.