Influenced by a multi-dollar drop per barrel in crude oil futures, May natural gas futures dropped to a new low for the down move Monday before rebounding to close at $3.628, up 1.8 cents from Thursday’s pre-holiday close.
May crude futures were under heavy selling pressure for much of the day following a bearish International Energy Agency report issued Friday after the market was closed. The report cut 1 million b/d off its previous 2009 demand forecast, which now calls for a 2.4 million b/d year-on-year decline in global consumption for 2009.
Citi Futures Perspective analyst Tim Evans noted that because of the crude report, natural gas futures were on the defensive Monday, but not to the same degree as crude. May crude closed out Monday at $50.05/bbl, down $2.19.
“The supply/demand balance here [in gas] is also still bearish, without sufficient heating demand to make up for the weakness in industrial use, but this is not necessarily breaking news,” he said. “The weekend weather updates failed to save the market from this further price erosion, but is not much different from the outlook of last Thursday.”
May natural gas put in a low of $3.504 in Monday morning trade, besting the previous low for the move of $3.531 recorded last Wednesday. Since last summer’s high of $13.694, front-month futures values have fallen almost 75% to Monday’s lows. Despite the lack of current bullish fundamentals, some energy experts don’t see prices falling much further, especially once the repercussions of reduced drilling translate to reduced supply.
On Thursday Baker Hughes reported that the number of rigs drilling for gas in the United States fell by 18 to 790 for the week ended April 9. That is down 661 from a year ago and less than half of what it was when the gas rig count peaked in September at 1,600.
Patience may be key. “Bulls have been grasping at this decline in rigs as a bullish development, and it will be, but the market is just not ready for anything bullish right now,” said Peter Beutel, president of Cameron Hanover, a Connecticut-based energy consulting firm. “At some point in the future, this decline in drilling will be revisited weekly as prices rally. It is just not the right time, yet. The market is focused entirely on weaker consumption, primarily from industrial users. When the economy does turn, the combination of low prices and diminished supplies will be extremely bullish — but not until the economy turns.”
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