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Natural gas down 7% at close on surprise stock rise
2006-01-06


SAN FRANCISCO (AFX) - Natural-gas futures finished Thursday with a loss of almost 7 pct, closing at the lowest level in more than five months after a US report showed that inventories of the heating fuel unexpectedly climbed last week.

Crude futures followed natural gas lower, though it did trade higher at times Thursday as traders digested news of a smaller-than-expected decline in supplies and increases in distillate and motor gasoline stocks.

US natural-gas stocks rose 1 bln cubic feet for the week ended Dec 30, the Energy Department reported Thursday. Market estimates had called for declines anywhere between 30 bln and 80 bln cubic feet.

The increase is "the first recorded for this time of year," Randy Ollenberger, an analyst at BMO Nesbitt Burns, said in a research note.

February natural gas dropped to a low of 9.39 usd per million British thermal units on the New York Mercantile Exchange before closing down 69.8 cents at 9.499 usd -- a closing level not seen since July 29.

The contract rose to an all-time high of 15.78 usd on Dec 13 so it was down as much as 40 pct from that peak.

"Warmer-than-normal weather for much of the country has softened natural-gas demand over the holiday season and has caused natural-gas prices to drop significantly from their record highs," said Ollenberger.

"The build recorded for the week compares to a five-year average draw for this time of the year of 90 bln cubic feet and a similar draw of 101 bln cubic feet recorded one year ago," said Ben Weagraff, an associate economist at Moody's Economy.com, in a weekly report issued after the data's release.

Total stocks now stand at 2.641 trln cubic feet, down 79 bln cubic feet from the year-ago level, but up 168 bln cubic feet from the five-year average, the government data said.

The data were "dropped on the market without any qualification that revisions or changes in methodology might have been involved," said Tim Evans, a senior analyst at IFR Markets.

But Kyle Cooper, an analyst at Citigroup argued that there is speculation regarding a revision to the natural-gas storage number.

"There is one anomaly that may result in a base gas to working gas revision of 5-7 bln cubic feet," he said in a note to clients. But "we do not believe a revision of significant magnitude is warranted as one of our outlier models did indicate a build of 0.4 bln cubic feet."

"There may well be a revision, but I am not calling for one other than possibly a 5-7 bln cubic foot base gas to working gas revision as mentioned," he said.

Elsewhere in the energy complex, the natural-gas price decline combined with the rise in petroleum-product stocks to pull crude futures lower.

February crude fell 63 cents to finish at 62.79 usd a barrel after briefly climbing to a high of 63.75 usd. Heating oil for February delivery lost 2.96 cents to close at 1.7881 usd a gallon, while February unleaded gasoline ended at 1.787 usd a gallon, up 0.25 cent.

On Thursday, the Energy Department said crude inventories fell 1 mln barrels for the week ended Dec 30 to total 321.6 mln. That's 12.5 pct above the year-ago level.

The American Petroleum Institute reported a decline of 1.8 mln barrels and tallied stocks at 321.7 mln.

Distillate supplies, which include heating oil, rose 2.1 mln barrels to 128.9 mln, the government data showed. They were up 3.9 mln at 133.4 mln,ccording to the API.

At the same time, motor gasoline stocks were up 1.4 mln barrels at 204.3 mln barrels, the Energy Department said. The API posted an increase of 2.8 mln barrels to a total of 205.3 mln.

The increase in petroleum-product stocks came on the heels of an increase in refinery utilization to 89.9 pct of capacity from 88.9 pct in the previous week, according to government figures.

The product-supply increase also comes despite higher demand. Gasoline demand averaged 9.3 mln barrels per day over the last four weeks, or 1 pct above the same period a year ago, the Energy Department said.

Distillate demand averaged over 4.3 mln barrels per day in that period, or 4.1 pct above a year ago.

"For nearly five straight weeks, the EIA stock report has now surprised the market with inventory numbers on the upside," said Rakesh Shankar, an economist at Moody's Economy.com. "As a result, prices for crude especially will revert to the lower numbers seen in December."

Prices had risen since New Year's in light of the natural-gas price dispute between Russia and Ukraine, which sparked "fears of an extended increased in oil demand to make up for lost gas," Shankar said.

But the "quick resolution of that dispute has proved the recent 2 usd increase in oil prices unnecessary," he said. Thursday's "robust inventory report will drive that point home further."

But in a research note ahead of the oil supply data's release, Tobias Merath, a commodities analyst for Credit Suisse in Zurich argued that overall, fundamentals in the oil market are quite strong amid oil-product demand in the US, declining oil exports from Iraq and Iran's resumption of nuclear research.

Prices "should remain supported through the first quarter as demand remains supported by higher winter demand and speculative buying pressures remain strong," said Matthew Parry, an economist at Moody's Economy.com.

But the "longer prices remain inflated around the 60 usd level, the less likely an OPEC Jan 31 supply cut becomes," he said. The cartel of oil-producing majors will meet at the end of the month in Vienna to discuss oil policy.

On the equities side Thursday, benchmarks tracking the oil and gas sectors were lower Thursday, with the Oil Service Index making the biggest move.

Elsewhere, gold futures closed lower for the first time in nine sessions.

Taking a broad measure of the commodity-futures markets, the Reuters/Jefferies CRB Index stood at 335.8 points, down 0.8 pct on the New York Board of Trade.

This story was supplied by MarketWatch. For further information see www.marketwatch.com

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