Natural Gas Has Biggest Weekly Drop Since August on Concern Demand to Fall

Natural gas futures posted their biggest weekly drop in more than eight months on the outlook for demand, as stockpiles rose more than expected and commodities tumbled on speculation that economic growth will slow.

Gas dropped 9.9 percent this week, the most since the five- days ended Aug. 27, after the Energy Department said inventories increased by 72 billion cubic feet last week, above the 67 billion analysts estimated. Commodities slid the most in 31 months yesterday and extended declines today.

“The meltdown in commodities drove a bit of a selloff for gas,” said Gordy Elliott, a risk-management specialist at FC Stone LLC in St. Louis Park, Minnesota. “The gas industry seems quite confident about its ability to keep production levels up.”

Natural gas for June delivery fell 2.6 cents, or 0.6 percent, to settle at $4.235 per million British thermal units on the New York Mercantile Exchange. The futures have dropped 3.9 percent this year.

Gas stockpiles rose to 1.757 trillion cubic feet in the week ended April 29, the Energy Department reported yesterday. Storage injections for the previous two weeks had fallen short of analysts’ predictions as compiled by Bloomberg. Inventories were 1 percent below the five-year average.

“We haven’t been very far on either side of the five-year average storage level” for the past few weeks, said Tim Evans, an energy analyst with Citi Futures Perspective in New York.

Commodity Markets

Commodities tumbled yesterday as the dollar climbed against the euro after European Central Bank President Jean-Claude Trichet said inflation risks will be watched “very closely,” signaling the ECB may wait until after June to raise rates.

A strengthening dollar makes commodities priced in the currency less attractive for investors.

Crude oil for June delivery tumbled $2.62, or 2.6 percent, to $97.18 a barrel in New York, the lowest settlement price since Feb. 28 and capping the biggest weekly decline since December 2008.

The Standard & Poor’s GSCI Index of commodities fell 6.5 percent yesterday, the most since Jan. 7, 2009, and lost 0.9 percent today.

The U.S. jobless rate climbed to 9 percent, the first increase since November, the Labor Department said today in Washington. Applications for jobless benefits gained 43,000 to 474,000 in the week ended April 30, the most since August, department figures showed yesterday.

The measure of employee output per hour increased at a 1.6 percent annual rate after a 2.9 percent gain the prior three months, according to the department.

Mild Weather

Mostly normal temperatures are likely in the eastern and central U.S. from May 11 through May 15, according to Commodity Weather Group in Bethesda, Maryland. The mild weather may reduce the demand for gas for heating and cooling.

The high temperature in New York on May 12 may be 69 degrees Fahrenheit (21 Celsius), 1 degree below normal, according to AccuWeather Inc. in State College, Pennsylvania.

Power plants use 30 percent of the nation’s gas supplies, according to the Energy Department.

Gas futures volume in electronic trading on the Nymex was 306,293 as of 3:20 p.m., compared with the three-month average of 324,000. Volume was 476,447 yesterday. Open interest was 998,631 contracts, down from a record a day earlier. The three- month average open interest is 939,000.

The exchange has a one-business-day delay in reporting open interest and full volume data.

(Source: http://www.bloomberg.com/news/2011-01-12/natural-gas-increases-for-second-day-in-new-york-on-inventory-forecasts.html)