Natural Gas Closes at Five-Month High on Bigger-Than-Forecast Supply Drop

Full article here.

 

Natural gas futures rose to the highest price in more than five months after a government report showed that U.S. inventories fell more than forecast last week as cold weather boosted demand for the heating fuel.

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Natural gas for February delivery advanced 13.4 cents to $4.695 per million British thermal on the New York Mercantile Exchange, the highest settlement price since Aug. 4.

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Last week’s storage drop was bigger than the five-year average decline of 133 billion cubic feet, department data showed. A surplus to the five-year average fell to 1.9 percent from 5.8 percent the previous week. A surplus to year-earlier supplies widened to 2.8 percent from 2.4 percent.

Gas inventories may fall to 1.7 trillion cubic feet by the end of the winter heating season, down from the previous estimate of 2 trillion, Barclays Capital said in the report yesterday.

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“With more cold weather still in the forecast for the eastern U.S., we continue to see potential for nearby natural gas futures to run to $5,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York.


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Permalink Reply by Scott on January 20, 2011 at 10:43
With colder than normal temps predicted for the next 30 days, we could be looking at deficit in terms of the 5 year average at the end of the winter. I also read an article today from accuweather on how we shouldn't expect record highs this March and April like last year. This sure beats the 10 to 15 percent above the 5 year average at the start of the heating season. 
Permalink Reply by Jack Blake on January 20, 2011 at 12:03
NG will be up to $5.50 by the end of 2011 cried Jack Blake!
Permalink Reply by Frank on January 20, 2011 at 14:27
They need to employ system balanced mmcf/d and get the price up.  It would take all companies choking back.  I'd be happier with 1/2 the production at 3 X the price.  I'm just saying.  It's a market commodity.  The paper industry leveled the price swings by holding back greed.
Permalink Reply by adubu on January 20, 2011 at 14:52
all the NG companies are now putting more and more rigs on oil--- now even CHK has change plans from #1 in NG to oil. CHK has moved up to #7 in oil which > 50% of their rigs have moved to oil play since $90 barrel vs $4.5 NG this will have same effect as when they laid down NG  rigs at end of 2008. I think we can see NG get above $6 within next 12-18 months and if oil >$100 then most all will go after oil and NG will stay up in this range or higher for several years.
Permalink Reply by David on January 20, 2011 at 15:04
I hope you are correct. Time will tell.
Permalink Reply by Les Bamburg on January 20, 2011 at 15:40
Adubu, don't be misled by the various operators' tricky terminolgy.  For example Chesapeake has moved rigs to "liquid" plays.  In most cases these are still gas plays that have associated condensate and natural gas liquids.  So there is still a lot of natural gas production.  Other operators are doing similar things.  Examples include the Eagle Ford Shale, Granite Wash, Marcellus Shale, Cana Shale & Woodford Shale.  The Bakken Shale is an oil play and EOG controls the oily portion of the Barnett Shale.  In reality there are not many opportunities for true oil plays in the US.   
Permalink Reply by adubu on January 21, 2011 at 1:06
Les B-- I agree and that's  why it will hurt the Haynesville shale because it basically Dry Gas but at same time this will decrease the supply over all which in time will improve NG prices. Then one day they will be back in full force drilling again. It's simply the normal cycle in the oil & gas patch as they say "boom-Bust"
Permalink Reply by Les Bamburg on January 20, 2011 at 15:44
Frank, don't look for 3X the price as demand would be dramatically cut at that price level.  A more realistic target is a range of $6-8 per MMBtu in the longer term.
Permalink Reply by Scott on January 20, 2011 at 16:00

Les,

 

I don't foresee see anything getting in the way of gas prices approaching 5$ per MMBtu if we can continue to dwindle down supply like what is forecasted. What are your thoughts?

Permalink Reply by Les Bamburg on January 20, 2011 at 17:34
Scott, I am still concerned about the US natural gas supply-demand picture and need to see some evidence that US gas production will drop down to levels necessary to balance demand.  Although we have seen some big draws from gas storage, when adjusted for temperature they indicate we are still oversupplied by 1-2 Bcfd.  Hopefully in 2011 we will begin seeing signs of decreased production and will start building upward pressure on natural gas prices.  It may be that 2012 will be the more likely timing for a recovery in prices. 
Permalink Reply by Scott on January 21, 2011 at 3:10
I've noticed the steady trend of the drop in gas rigs over the last month. How much more would they have to fall to drop the production levels to a more balanced demand picture?
Permalink Reply by Les Bamburg on January 21, 2011 at 4:36
Scott, yes - there has been a reduction of ~ 59 rigs over the last few weeks.  We probably need to see an additional reduction of 100 to 150 gas rigs to reach balance depending upon where the reductions occur.
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