Big Surplus of Natural Gas Pushes Prices to a Five-Month Low

Posted Mar 19th 2010 10:30AM by Connie Madon
Filed under: Commodities, Recession

Now here's a strange phenomenon. The price of crude oil is near $83.00 per barrel and gas in nearing $3.00 per gallon.

Yet natural gas is going in the opposite direction. First we must mention that crude oil is an international commodity, while natural gas is a domestic product. The dynamics for each commodity are different. For crude oil, the United States is bidding against developing countries like China and India. These developing countries' economies are growing and need more oil. Hence the price is going up.

Natural gas, on the other hand, is domestic and not subject to the pressures of crude oil. What then is causing the price decline? Here are several factors that are coming together to drive the price to its lowest level in five months:

Inventories shrank by only 11 billion cubic feet the week of March 12. Analysts had predicted the drop to be 30 billion.
The surplus to five-year average widened to 4.7% from 1.2% during peak heating season.
Gas production is scheduled to increase because the number of rigs is up 39%.
Companies are finding cheaper ways to produce natural gas.
U.S. production reached an all-time high of 26.3 trillion cubic feet in 2009, up 2.2%.
Demand has been depressed because of the worst recession since the 1930s. Deliveries of gas to industries fell 512 billion cubic feet or 7.7% in 2009.
At the end of November, inventories reached a record 3,837 trillion cubic feet.
Warmer weather is causing a drop in demand. About 52% of households use natural gas for heating.