Nymex Natural Gas Rises to $11 on Higher Crude, Supply Concern

Business Materials 26 April 2008 03:14 (UTC +04:00)

Natural gas rose to the highest in more than two years as oil advanced on supply disruptions, spurring prices of the heating and industrial fuel, Bloomberg reported.

Crude rose as BP Plc prepared to shut down a North Sea pipeline and violence and strikes crimped output in Nigeria. The furnace fuel also gained amid speculation supplies may fall short of the quantities needed to rebuild storage for next winter's heating needs.

``People are trying to make an association that natural gas and crude have a symbiotic relationship and their prices need to be closer,'' said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``There's been a notion prevalent for the last month that this gap has to close.''

Natural gas for May delivery rose 17.3 cents, or 1.6 percent, to settle at $10.963 per million British thermal units at 2:53 p.m. on the New York Mercantile Exchange. The price rose to $11.05 per million Btu in after-hours electronic trading, the highest intraday price since Dec. 30, 2005. The May contract is up 4 percent this week. Prices are 47 percent higher so far this year. The contract expires on April 28.

The contract for June delivery rose 15.8 cents, or 1.4 percent, to $11.101 per million Btu and is pulling the May price higher, said Rose.

Based on prices in the cash market, gas is valued at $11.27 per million Btu compared with $14.66 per million Btu for fuel oil, according to data compiled by Bloomberg. Heating oil at $23.88 per million Btu equivalent is more than double the price of gas.

``There's some pre-weekend short covering for natural gas,'' said George Ellis, a director in the energy derivatives group at BMO Capital Markets in New York. ``Natural gas looks very strong. Momentum is taking over and allowing this market to trade higher.''

Traders who are short heading into the weekend may be buying now to guard against having to purchase gas at higher prices should it surge before regular trading resumes on April 28. Short trades are bets that the price of a commodity will decline. Prices typically rise as those speculators who had sold contracts anticipating lower prices buy them back to protect gains or limit losses.

Gas has held above the nine-day moving average of about $10.605 per million Btu and unless it breaks below that, the fuel should continue higher, Ellis said.

Moving average is an indicator used by technical analysts. It shows the average value of a security or commodity over time. Chartists track the averages for clues on price direction.

Higher crude allows ``natural gas traders the luxury of paying attention to their own fundamentals,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut.

To rebuild supplies for next winter, higher prices are needed to either prompt additional exploration and production in the U.S. or to pull cargoes of liquefied natural gas from Asia and Europe, which pays more.

Inventories for the week ended April 18 gained 24 billion cubic feet to 1.285 trillion, the Energy Department said in a report yesterday. Stockpiles were 18 percent lower than a year ago and 1.9 percent below the five-year average, the department said.

The five-year average change for the same week of the year is an increase of 46 billion, according to the Energy Department.

Gas inventories fell to 1.234 trillion cubic feet on April 4, the lowest since May 2004, after reaching a record 3.545 trillion in November.

``I have a feeling we're going to make new highs,'' said Beutel. ``We're losing production from Independence Hub. Imports of LNG are lower and we're playing catch up to next winter, there are a lot of reasons to think this is still a bullish market.''

Flow of liquefied natural gas into the U.S. is below that of a year ago as Europe pays more for the fuel to build up inventories, investment bank Tudor, Pickering, Holt & Co. said.

U.S. LNG imports dropped to 900 million cubic feet a day in April from a daily 3.2 billion cubic feet a year earlier, Tudor analyst Stacy Nieuwoudt said in an e-mail yesterday. The New York June futures contract was $1.63 per million British thermal units below prices offered in the U.K. today for the same month, according to data compiled by Bloomberg.

LNG is super-cooled natural gas reduced to a liquid for transport by ships to markets not connected by pipeline.

The Independence Hub, a production platform in the Gulf of Mexico that was supplying about 900 million cubic feet a day, shut April 9 after a leak was discovered in a pipeline. Repairs may take as long as four weeks, Enterprise Products Partners LP, which owns Independence, said.