US natural gas prices fall as stockpiles rise
By Gregory Meyer in New York and Chris Flood in London

Published: September 17 2009 12:01 | Last updated: September 17 2009 22:28

US natural gas prices declined on Thursday after the latest addition to plentiful stockpiles, tempering a strong rally that had lifted futures 60 per cent in two weeks.

Nymex October Henry Hub fell 4.5 per cent to $3.587 per million British thermal units, easing back after touching its highest point in more than a month.

The early rise came after the US Department of Energy said that producers injected less gas into storage facilities last week than expected.

The US DoE reported that 66bn cubic feet of gas was injected last week against traders’ expectations of a 73bn cubic foot increase.

Natural gas prices’ explosive rebound, from a seven-year low of $2.409 per mBtu, hit in early September, has accompanied a slightly tightening market.

At 3,458bn cubic feet, US gas inventories are 16.4 per cent higher than the five-year average, a smaller percentage than in recent weeks.

Positive economic news has stirred hopes that industrial demand for natural gas will pick up.

Industrial demand, which accounts for more than a quarter of total gas consumption, is down 11 per cent from last year.

However, this latest rally has puzzled many analysts. Supplies are more than ample to meet winter heating needs or a rise in industrial demand.

The current benchmark contract is for October delivery, a month in which any further increase in stocks threaten to overflow storage facilities.

Some point to financial flows to explain the rally.

When prices rebounded, they forced dealers holding bearish positions to exit their trades (short covering), providing a temporary pop to the gas market.

“Gas prices are beginning to melt, like Icarus’s wings of wax, because recent buyers carried the market aloft on not much more than substantial short covering,” said John Kilduff, senior vice-president at brokerage MF Global in New York.

On Thursday, the United States Natural Gas Fund, a $3.9bn exchange-trade fund, ended its “roll” in which it replaced the expiring October gas contracts with November gas.

Edward Kott, analyst at LCM Commodities, noted that, in the past eight months, the front-month gas futures contract has expired lower than it did the day US Natural Gas finished rolling its contracts. October Nymex gas expires on September 28.

“The rally that we’ve seen over the last week has largely been financially driven,” said Mr Kott.

Gold extended its push beyond the $1,020 mark, reaching a high of $1,023.85 a troy ounce, closing in on the record price set in March last year.

In late trading on Thursday, gold eased back to $1,015, down 0.2 per cent from the the end of Wednesday’s session in New York when bullion settled at $1,016.70, its highest closing price.

Gold could hit $1,600 if crude oil reaches $100 a barrel in the next six to 18 months, according to Nick Holland, chief executive of South Africa’s Gold Fields.

Trading in crude oil prices was unusually subdued with with Nymex October West Texas Intermediate down 4 cents to $72.47 a barrel while ICE October Brent fell 12 cents to $71.55.