BLBG: Natural Gas Futures Tumble on Sluggish Demand in Recession
Natural gas futures declined in New York on skepticism that the economy is recovering fast enough to reduce a glut of the factory and power-plant fuel.
Industrial demand for gas is forecast to drop 8 percent this year because of the recession, according to the Energy Department. Larger-than-normal U.S. stockpiles may rise to an all-time high before the winter, when heating-fuel demand whittles supplies.
“We’re more than 20 percent above the five-year average and there’s talk that we can reach the record,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Unless you see real verifiable signs that demand will kick in, you’re going to continue to see” natural gas fall.
Natural gas for July delivery dropped 8.9 cents, or 2.1 percent, to $4.16 per million British thermal units at 11:18 a.m. on the New York Mercantile Exchange. Futures have declined 26 percent this year.
Gas demand may not pick up for at least the next six months, said Stephen Briggs, a partner at Intermarket Management LLC in Verona, New Jersey, a brokerage and energy risk- management firm. “We’re still having layoffs. The economy is still not great. I don’t see anything changing.”
Factories and power-plants account for 58 percent of U.S. gas demand. Yesterday, the Institute for Supply Management’s factory index rose to 42.8 from 40.1 in April. Readings less than 50 signal a contraction.
GM Shutdowns
General Motors Corp., which filed for bankruptcy in New York yesterday, announced plans to close 12 more plants as it shrinks operations, pushing the total number of its factories being permanently shut to 14 by the end of 2011.
“Overwhelmingly, on the natural gas side, industrial demand remains pretty depressed,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston. “I don’t think people are going to be comfortable taking natural gas prices above $4.50 until you get some telltale signs that you’re re-engaging some of that industrial demand.”
Futures also declined a day after surging 11 percent, the biggest one-day gain since March 19.
“Most of the markets are taking a breath here,” said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. “Right now you’re seeing profits locked in from yesterday. It’s not atypical.”
