Natural gas, oil prices move up

By Mark Williams
Associated Press / September 16, 2009

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Natural gas prices that have fallen steadily for a year are bouncing back sharply, up 16 percent since Monday, raising questions about whether prices fell too far.

After jumping as much as 9 percent, natural gas settled 2.3 cents higher at $3.32 per 1,000 cubic feet yesterday on the New York Mercantile Exchange.

Oil also moved higher in afternoon trading as the dollar fell to a new yearly low against the euro, stocks moved higher, and Federal Reserve chairman Ben Bernanke said the worst recession since the 1930s is probably over.

Natural gas is still far from the $14 that it commanded last summer, before the recession destroyed demand for gas, gasoline, diesel, and jet fuel. Yet given the fact that storage facilities are brimming with natural gas, the $1 spike since the beginning of the month has many energy analysts skeptical.

“No doubt, gas is cheap,’’ analyst and trader Stephen Schork wrote yesterday. “But, if there is no value, then cheap, in and of itself, is not a reason to own something. Back in the 1980s the Yugo GV was cheap also. The car was cheap for a reason.’’

Natural gas in key storage facilities is nearing capacity, some exceeding 97 percent.

How much more gas can be pumped into the massive caverns that are used for storage is key. The US Energy Information Administration said in its short-term energy outlook that it expects another 12 percent buildup through October.

It is, however, the time of year when people begin to think about heating their homes, and that means more natural gas may be flowing out of storage.

Prices hit $2.409 on Sept. 4, a seven-year low, on the eve of the heating season.

“The easy answer is that it was just too cheap,’’ PFGBest analyst Phil Flynn said. “Not the answer perhaps you were looking for but perhaps it is the most accurate one.’’

The four-week average for gasoline consumption in the United States fell 3.2 percent for the week ended Friday, the ninth straight weekly decline, even though gasoline is one-third cheaper than a year ago, according to a SpendingPulse report by MasterCard yesterday.

Still, investors seeking a hedge against inflation have continued to plow money into oil markets.

Benchmark crude for October delivery rose $2.07, to settle at $70.93 a barrel. On Monday, the contract fell 43 cents to settle at $68.86.