By Chris Flood
Published: February 23 2010 02:00 | Last updated: February 23 2010 02:00
US natural gas prices dropped sharply yesterday as weather forecasts predicted temperatures in the US north-east would moderate after recent severe winter weather.
Nymex March Henry Hub dropped through the key $5 level, falling 18 cents, or 3.6 per cent, to $4.864 per million British thermal units, a two-month low.
Natural gas prices have dropped 12.7 per cent this year and some traders believe that winter will end with gas stocks, currently about 2,025bn cubic feet, at record levels.
Francisco Blanch, head of global commodities research at Bank of America Merrill Lynch, said demand for gas from US industry had remained very depressed.
Mr Blanch said that, although US industrial production could increase by 6 per cent this year, demand for gas from industries such as refiners, petrochemicals or steel producers would rise only 3.7 per cent, about 600m cubic feet in 2010.
Crude oil prices breached $80 a barrel but surrendered their gains later in the session.
Nymex March West Texas Intermediate reached a high of $80.51 a barrel but later traded 24 cents lower at $79.57. The March WTI contract was due to expire at the close and April WTI, the US benchmark from today, traded 16 cents lower at $79.90 after reaching a high of $80.78.
Goldman Sachs said crude oil was moving into a new trading range of $85-$95 a barrel, up from the low $70-$80 a barrel range that has characterised trading since October.
The bank said the drivers of higher oil prices were rising demand as a result of global economic recovery and supply constraints.
Goldman cited disruptions in North Sea oil production, reduced Venezuelan exports due to a power generation crisis and the strike affecting Total's refineries in France.
Talks between Total's management and workers have broken down and unions have called for the strike to spread to all French refineries.
ICE April Brent gained 4 cents to $78.23 after hitting $78.94.
Mike Wittner, global head of oil research at Société Générale, said oil prices were finding support from stronger fundamentals, reflected in a large fall in stocks in the first half of February.
Mr Wittner said that, although inventories had fallen, this was having little impact on the profit margins that refineries earn from processing crude oil.
"This is a 'bottom of the refining cycle' market with low refinery utilisation rates," he said.
Raw sugar prices dropped sharply, down 6.7 per cent to $25.01 cents a pound, as fund closed long positions ahead of the expiry of the ICE March contract on Friday. White sugar followed but the fall was less dramatic. Liffe May white sugar lost 2.7 per cent at $687 a tonne.
Cobalt and molybdenum made their trading debut on the London Metal Exchange. As expected, trading was light with 26 lots traded for cobalt and 3 lots for molybdenum compared with 171 lots for tin.
The huge price volatility experienced by both metals in recent years is expected to encourage consumers and producers to use the LME contracts for hedging.
