--Front-month December contract keeps setting new lows, and may test low for the year
--Abundant supply and low demand create weak fundamentals
--Cheap gas, by-product of shale oil development, undercuts price
By Christian Berthelsen
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Natural gas futures fell as much as 2.1% in morning trading Friday on follow-through weakness from Thursday's latest report on stored inventories, which showed another larger-than-average addition to already-abundant supply.
Natural gas futures for December delivery were recently down 5.5 cents, or 1.5%, to $3.594 a million British thermal units on the New York Mercantile Exchange. Prices have plummeted nearly 30% since June, and have been setting record lows for the front-month December contract--historically a time of rising prices, with demand driven by winter weather. They are now within striking distance of testing the low for the year.
"The nat gas market just continues to go to the bears," ICAP analyst Drew Wozniak said in a note.
The market is suffering from a supply glut, as record amounts of production have contributed to large stored inventories, while mild weather has suppressed demand. Natural gas is a key component in power generation, and demand rises as people heat or cool their homes. Thursday's Energy Information Administration report showed growth of 37 billion cubic feet in stored inventories, which now appear poised to exceed last year's record.
Part of the issue is a surfeit of natural gas that has emerged as a by-product of shale oil production throughout the U.S. The amount of this so-called unconventional gas has gone from virtually nothing to as much as a quarter of the market in just a few years. And with the cost of production being essentially free since it emerges in the course of oilfield development, there is no price at which it becomes too cheap to produce.
"It's just a complete lack of conviction in this market that's really causing the selloff this morning," said Summit Energy analyst Matt Smith.
--By Christian Berthelsen, Dow Jones Newswires; 212-416-2381; christian.berthelsen@dowjones.com
