U.S. natural gas traded below $2 per million British thermal units on Tuesday for the first time since April 2012 as a glut of the power-plant and heating fuel expands toward a record.
Unusually warm weather for this time of year is threatening to crimp gas demand just as caverns and reservoirs are filling up with supplies. The front-month contract fell as much as 5.5 percent Tuesday, extending Monday’s 9.8 percent drop, after money managers last week raised bearish gas bets to an all-time high.
“It’s getting very warm everywhere and with so much gas in storage, it’s like: ‘What are you going to do with it?”’ Trevor Sikorski, head of natural gas, coal and carbon research at Energy Aspects Ltd. in London, said Tuesday by telephone. “We have way more gas than the market ever could use in winter.”
Drillers are using hydraulic fracturing and horizontal drilling to pull so much gas out of U.S. shale formations that stockpiles of the fuel are on track to reach a record 3.956 trillion cubic feet this month, based on a U.S. Energy Information Administration forecast. Supplies are already hovering at the highest level for this time of the year since 2006. The glut prompted Goldman Sachs Group Inc. and Bank of America Corp.to cut short-term gas price forecasts last week.
U.S. gas supplies are on track to reach a record this year.
Source: U.S. Energy Information Administration.
Gas for November, which expires Wednesday, slid as low as $1.948 per million Btu on the New York Mercantile Exchange. The more active December contract fell 1.1 percent to $2.33 per million Btu by 11:51 a.m. in London.
While stockpiles will continue to expand through the first two weeks of November as existing wells add to the glut, the price drop will discourage new drilling, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a telephone interview Monday.
Gas reaching $2 “definitely pressures the producers to cut back on investment, to cut back on drilling and leave a little bit of gas in the ground for later,” said Evans. “In terms of the big-picture, boom-or-bust cycle, we are in the bust phase.”
The high temperature in Manhattan on Nov. 5 may be 66 degrees Fahrenheit (19 Celsius), 9 above normal, while Chicago will be 6 degrees warmer than usual, AccuWeather Inc. said on its website. About 49 percent of U.S. households use gas for heating, led by the Midwest and Northeast.
“It’s a bad time to become bearish on natural gas -- it really is,” Evans said. “The lower we go, the more of a bargain it represents and the less sustainable the price becomes.”
Unusually warm weather for this time of year is threatening to crimp gas demand just as caverns and reservoirs are filling up with supplies. The front-month contract fell as much as 5.5 percent Tuesday, extending Monday’s 9.8 percent drop, after money managers last week raised bearish gas bets to an all-time high.
“It’s getting very warm everywhere and with so much gas in storage, it’s like: ‘What are you going to do with it?”’ Trevor Sikorski, head of natural gas, coal and carbon research at Energy Aspects Ltd. in London, said Tuesday by telephone. “We have way more gas than the market ever could use in winter.”
Drillers are using hydraulic fracturing and horizontal drilling to pull so much gas out of U.S. shale formations that stockpiles of the fuel are on track to reach a record 3.956 trillion cubic feet this month, based on a U.S. Energy Information Administration forecast. Supplies are already hovering at the highest level for this time of the year since 2006. The glut prompted Goldman Sachs Group Inc. and Bank of America Corp.to cut short-term gas price forecasts last week.
U.S. gas supplies are on track to reach a record this year.
Source: U.S. Energy Information Administration.
Gas for November, which expires Wednesday, slid as low as $1.948 per million Btu on the New York Mercantile Exchange. The more active December contract fell 1.1 percent to $2.33 per million Btu by 11:51 a.m. in London.
While stockpiles will continue to expand through the first two weeks of November as existing wells add to the glut, the price drop will discourage new drilling, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a telephone interview Monday.
Gas reaching $2 “definitely pressures the producers to cut back on investment, to cut back on drilling and leave a little bit of gas in the ground for later,” said Evans. “In terms of the big-picture, boom-or-bust cycle, we are in the bust phase.”
The high temperature in Manhattan on Nov. 5 may be 66 degrees Fahrenheit (19 Celsius), 9 above normal, while Chicago will be 6 degrees warmer than usual, AccuWeather Inc. said on its website. About 49 percent of U.S. households use gas for heating, led by the Midwest and Northeast.
“It’s a bad time to become bearish on natural gas -- it really is,” Evans said. “The lower we go, the more of a bargain it represents and the less sustainable the price becomes.”
