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US gas in storage near record levels
By Derek Brower Natural gas in underground storage in the US rose again last week, said the Department of Energy (DOE), reaching a record high of 3.66 trillion cubic feet (cf). That represented a jump of 69bn cf on the previous week – a "huge" rise, according to one analyst and well above market expectations. And yet natural gas prices in New York are retaining much of the strength they have acquired since the summer's rock-bottom trading. Nymex's front month contract yesterday morning was trading at around $4.90/m Btu. Prices rallied following the DOE's stocks announcement, to the bewilderment of some observers. "We must respect this rally, even though we do not understand the whys and wherefores of its origin," said Stephen Schork, editor of the Schork Report market newsletter. Bulls in the market have been helped by a cold front in Chicago and predictions for cooler weather across the US this winter. But the rig count – which at just over half last year's level has provided another source of bullish sentiment – could be misleading, says Schork. Last week, the number of US rigs rose by seven, to 1024 – 955 rigs fewer than in the same week of last year, according to services company Baker Hughes. Rig count misleading Yet the historically low count could be misleading, say analysts, because the productivity of wells in the unconventional-gas plays is rising. In other words, don't trust the rig count – trust the volumes going into storage. Meanwhile, the oil market also seems to be finding support from beyond the fundamentals. Yesterday morning, the front-month Nymex contract had firmed by $0.32 a barrel to top $72/b, despite a 310,000 barrels a day rise in supply in September, according to the International Energy Agency (IEA). A weaker dollar, following news of meetings between top oil producers to discuss ditching the currency, was one reason for the rise. And the IEA warned the bulls: "Even though the pace of demand contraction is clearly easing, auguring a return to year-on-year growth by Q4 09, the outlook for 2010 is still fraught with uncertainty, as the IMF warns."
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