Tags: US | Natural | Gas | Storage

Natural Gas Price Drops to Record Low as Supply Grows

Thursday, 25 Mar 2010 11:26 AM

The futures contract for natural gas tumbled to its lowest price on record Thursday after the government reported that supplies grew for the first time this year, adding to already bloated reserves.

The country had been burning large volumes of natural gas to heat homes and run power generators this winter as heavy snowstorms blanketed parts of the country. But the drawdown wasn't enough to erase huge surpluses built up during the past few years.

The Energy Department's Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states increased by 11 billion cubic feet to about 1.63 trillion cubic feet for the week ended March 19.

Analysts expected an increase of between 9 billion and 13 billion cubic feet, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The inventory level was 8 percent above the five-year average of about 1.51 trillion cubic feet, and 1.7 percent below last year's storage level of about 1.65 trillion cubic feet, according to the government data.

Natural gas for April delivery dropped 15.9 cents, or 4 percent, to $3.946 per 1,000 cubic feet, on the New York Mercantile Exchange. Prices fell as low as $3.940 earlier in the day, the lowest on record for the April contract.

Meanwhile, oil prices gained after the Labor Department reported that jobless benefits dropped more than expected last week. Benchmark crude for May delivery added 52 cents at $81.13 a barrel on the Nymex.

Gasoline demand should rise as more workers get back into the daily commute, but some analysts worry that it won't happen soon.

"It's reasonable to assume the unemployment rate in the U.S. will remain stubbornly high for at least the next two years," energy analyst Stephen Schork said in a report. "The table appears set for further demand destruction for gasoline, not just in the U.S., but in Europe as well."

Retail prices dipped less than a penny overnight to a new national average of $2.813 a gallon, according to AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 15.3 cents more expensive than it was a month ago and 82.7 cents more expensive than the same time last year.

In other Nymex trading in April contracts, heating oil rose less than a penny to $2.0763 a gallon, and gasoline added less than a penny at $2.2266 a gallon.

In London, Brent crude gained 36 cents at $79.98 on the ICE futures exchange.

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