U.S. natural gas prices plunge but trend short-lived

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-------------------------------------------------------------------------------- U.S. gas prices plunge but trend short-lived

San Francisco (Reuters) - A steep, 10 per cent drop in United States natural gas prices in just two days is raising hopes among consumers that their heating bills this winter might not be as high as earlier feared. Forecasts of mild late-October weather and lower demand than last week from the 55 per cent of U.S. homes heated by natural gas have boosted energy traders' expectations that the flow of gas into storage for the winter will rise sharply this week.

Reflecting this view, natural gas futures for November delivery traded on the New York Mercantile Exhange tumbled 48 cents in the last two trading sessions, ending yesterday at $4.95 per million British thermal units (mmBtu).

This was the first time the contract closed below $5.00 since September 8. Just a week ago the same contract settled at $5.78, with traders and industry analysts warning that demand from a normal winter and sluggish production rates could send prices for spot natural gas as high as $7.00 per mmBtu by mid-winter, nearly three times the price paid last year.

"It's a shocker," Bill O'Grady, a St. Louis-based energy analyst at A.G. Edwards, said about the price drop, given that the industry has not abandoned its bullish supply/demand scanario for the coming months.

But he cautioned that gas prices would need to extend this downward trend for several weeks before residential and industrial customers can count on lower bills.

Companies with voracious appetities for natural gas, like Bethlehem Steel, one of the largest U.S. steel makers, are well aware the trend is likely to be short-lived.

"For a substantial impact, (NYMEX) prices would have to fall across the board and fall for several days," a spokeswoman for the Pennsylvania-based steel giant said.

Working against consumer optimism are two stubbornly bearish factors: The volume of gas in storage ahead of the winter remains about 9 percent below normal for this time of year.

And meteorologists' long-range forecasts overwhelmingly point toward a return to normal temperatures this winter, ending to a string of three mild winters that analysts say lulled the market into a false sense of security, resulting in low gas prices and correspondingly low production flows from gas fields.

Rather than paint a picture of a market trending downward, O'Grady and other anlaysts said the recent price drop could represent a good buying opportunity before the onset of colder weather and rising heating demand.


-- Martin Thompson (mthom1927@aol.com), October 20, 2000

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