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Natural Gas Rises to 11-Month High on Cold Weather, XTO Sale
December 14, 2009—Natural gas futures rose to an 11- month high on forecasts for below-normal temperatures across the Midwest and Northeast, boosting demand for heating fuel.
by Reg Curren, Bloomberg Cold weather will dominate through at least Dec. 23, Joe Bastardi, of AccuWeather.com of State College, Pennsylvania, said today in an outlook. About 52 percent of U.S. households rely on gas for heat. Futures also gained after Exxon Mobil Corp. said it planned to purchase gas producer XTO Energy Inc. “Above $5 there’s going to be a bullish lean in the market,” said Brad Florer, a trader at Kottke Associates Inc., a commodity futures broker in Louisville, Kentucky. “The bulls are a bit in the driver’s seat. The announcement that XTO is being bought also gives the bulls a bit more to grab hold of.” Natural gas for January delivery rose 16.9 cents, or 3.3 percent, to settle at $5.332 per million British thermal units at 2:56 p.m. on the New York Mercantile Exchange, the highest closing price since Jan. 12. Exxon Mobil agreed to buy Fort Worth, Texas-based XTO for $31 billion in a bet that there will be increased demand for the fuel because of U.S. emissions restrictions. “You’re going to see more consolidation,” Florer said. “The big boys think natural gas is going to be a good bet as one of the fuels that wins as far as what various laws are going to be on greenhouse gases.” Fewer Emissions Burning natural gas produces fewer emissions than fossil fuels such as coal, according to the U.S. Environmental Protection Agency. A gas-fired power plant emits about half as much carbon dioxide, less than a third as much nitrogen oxides and 1 percent of the sulfur oxides, compared with burning coal for electricity, the agency said on its Web site. The XTO purchase may bolster gas prices as the combined company spends less, tightening supply, Sanford C. Bernstein & Co. said. “Exxon will likely become a major advocate for gas as the preferred source of energy in the U.S.,” Neil McMahon, a London-based analyst at Bernstein, said today in a report. “It is clear Exxon must believe in rising prices for the transaction to be accretive.” The acquisition of XTO Energy may reduce gas futures trading, said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston. “Once they absorb XTO, Exxon will put it into their normal programming, where they won’t be out there hedging,” he said. “It’s going to leave a void in the market. It takes a lot of the day-to-day action out.” XTO Hedging XTO had hedged about 55 percent of its 2010 production at $9.62 per thousand cubic feet equivalent, Bob Simpson, the company’s chairman, said in a statement on Nov. 4. U.S. gas inventories fell 64 billion cubic feet in the week ended Dec. 4 to 3.773 trillion cubic feet, an Energy Department report showed on Dec. 10. The withdrawal exceeded forecasts for a decline of 45 billion cubic feet. Supplies may have fallen as much as 150 billion cubic feet last week, Andrew Potter, an analyst at UBS Securities LLC in Calgary, said in a note to clients. That would be 23 billion cubic feet more than the five-year average. Customers of Puget Sound Energy of Bellevue, Washington, set a one-day record for gas consumption in the 24-hour period ended at 7 a.m. on Dec. 9, the company said on its Web site. The utility has almost 750,000 gas customers in 11 counties in Washington state, including service in Seattle and Tacoma. The cold may stretch “into the last week of December,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consultant. “We’re also going to see a pretty hefty withdrawal from storage for last week.” Gas Supplies Gas stockpiles were 513 billion cubic feet, or 16 percent, above average for the week ended Dec. 4, according to department data. Recent reports have signaled that a recovery in the economy is gaining strength, helping to bolster demand for gas from factories, chemical plants and steel mills, which account for about 29 percent of U.S. gas demand. “Optimistic consumer confidence and retail sales reports may have also been taken as a signal that industrial demand for gas, which has largely been stagnant, is set to rise,” Michael Fitzpatrick, vice president of energy with MF Global in New York, said in a note to clients. Wholesale natural gas prices at the benchmark Henry Hub in Erath, Louisiana, rose 19.98 cents, or 3.8 percent, to $5.4084 per million Btu, according to data compiled by Bloomberg. Gas futures volume in electronic trading on the Nymex was 206,963 contracts as of 3:09 p.m., compared with a three-month daily average of 253,000. Volume totaled 289,868 on Dec. 11. Open interest was 739,762 contracts, compared with the three- month average of 714,000. The exchange has a one-business-day delay in reporting open interest and full volume data. To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net |