Tags: Natural | Gas | Oil | price

Natural Gas Drops to a 10-Year Low on Warm Snap as Oil Rises

Wednesday, 07 March 2012 11:23 AM

The price of natural gas dropped to the lowest level in a decade Wednesday as a mild winter comes to a close with a huge surplus of the fuel on hand.

Natural gas supplies typically drop in the winter as homes and business crank up the heat. But relatively warm temperatures, combined with a boom in production, has left storage facilities bloated with more gas than normal.

Natural gas futures fell by 4.5 cents to $2.311 per 1,000 cubic feet in New York. That's the lowest price since Feb. 25, 2002 and down 70 cents from the start of the year.

Independent commodities trader Stephen Schork said that natural gas could drop even further in coming weeks, possibly below $2 per 1,000 cubic feet, if demand declines as usual in the spring, in between the heating and air conditioning seasons.

"There's just too much out there," Schork said. "And there won't be enough demand to solve the supply issue this summer."

Supplies have been growing in recent years as drillers have learned to use a controversial drilling technology called fracking to tap vast reserves of natural gas trapped in shale formations under several states.

The government said last week that supplies were 45 percent larger than average for this time of year. Its next report will be released on Thursday.

While supplies grew, demand dropped this winter because of mild weather. January in the U.S. was the fourth warmest in the last 118 years, according to the National Weather Services. In the Northeast in February, temperatures were close to a record.

More than half of U.S. homeowners use natural gas for heat, and the drop in price has been a big relief this winter. Natural gas heating bills dropped 13 percent this winter, according to the Energy Information Administration. Using natural gas for heat cost half as much as propane and less than a third of the bill for using heating oil.

U.S. chemical companies also have benefited by using natural gas as a raw material.

Meanwhile, oil prices rose Wednesday after the government said that supplies grew less than expected last week.

Benchmark West Texas Intermediate, which is used to price oil produced in the U.S., added $1.11 to $105.82 per barrel in New York. Oil dropped $2.02 per barrel on Tuesday to a two-week low.

Brent crude, which prices foreign oils that are imported by U.S. refineries, increased by $1.72 to $123.70 per barrel in London.

The EIA added that U.S. energy demand remains weak. Average petroleum demand has fallen 6.1 percent so far this year and gasoline demand is 7.8 percent lower than a year earlier.

Gasoline pump prices fell less than a penny to $3.761 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is still 48.5 cents higher than it was at the beginning of the year.

In other energy trading, heating oil added 2.5 cents to $3.213 per gallon and gasoline futures rose by 4.72 cents to $3.2771 per gallon.

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Wednesday, 07 March 2012 11:23 AM
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