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Natural Gas Falls Below $5 Mark

Mild weather has led to slack demand and greater storage, sending prices to their lowest level since November.

September 02, 2004|From Bloomberg News

Natural gas futures fell below $5 per million British thermal units Wednesday, closing below that level for the first time since November, as mild weather signaled slack demand from power plants that need the fuel to generate electricity when air conditioner use is high.

Normal to below-normal temperatures are expected across most of the country this weekend, with hotter-than-average weather limited to the upper Midwest, private forecaster Earth Satellite Corp. said. A quarter of U.S. households with air conditioning are in the Midwest, according to Energy Department data.

The $5 level was "a big psychological barrier," said Michael Fitzpatrick, vice president of energy risk management with Fimat USA in New York.

Gas for October delivery fell 10.9 cents, or 2.2%, to $4.965 per million British thermal units on the New York Mercantile Exchange. It was the lowest price for a contract closest to expiration since Nov. 26.

Natural gas prices have slumped since early July, even as crude oil prices have surged for most of the period.

Government forecasters expect hot weather from the Great Lakes south into Texas and Southern California early next week to give way to normal to below-normal temperatures for most of the country Sept. 11-15.

A mild summer has helped utilities and manufacturers store gas at a faster-than-normal pace for the winter. U.S. inventories as of Aug. 20 were 6.7% higher than the five-year average. Utilities store gas from April to November for use in winter, when demand exceeds production.

Inventories are rising enough to rival the highest storage volume on record, 3.25 trillion cubic feet, set in November 2001, analysts said. With 10 weekly storage reports left until the traditional start of the winter heating season Nov. 1, utilities must average 64 billion cubic feet a week to match the record.

Storage gains have averaged more than 64 billion cubic feet throughout the summer, "and now we're coming out of the hottest part of the season," said Guy Gleichmann, president of United Strategic Investors Group, a commodity brokerage in Hollywood, Fla. "You could make a very good case certainly for exceeding 3.2 trillion" cubic feet of gas in storage, "and maybe for exceeding the all-time high."

Natural gas competes with oil-based fuels for use by 5% to 10% of U.S. power plants, so lower gas prices could encourage more plants to shift from oil.

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