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By Mark Long Of DOW JONES NEWSWIRES
U.S. natural gas futures ended higher Tuesday, tracking a surge in heating oil prices and rising crude, as participants await the restart of a major Gulf of Mexico gas output hub.
Natural gas for June delivery on the New York Mercantile Exchange settled up 12.1 cents, or 1.07%, at $11.422 a million British thermal units. June gas hit a high of $11.649 in combined electronic and floor trading.
"We've been following the petroleum pretty closely during the month of May, when you're not getting much guidance from the weather," said Jim Ritterbusch, a private energy analyst in Galena, Ill. He added that since the U.S. has been exporting diesel, the market is discounting a counterseasonal draw in stocks of distillates, a category that includes heating oil and diesel.
"That's got the heating oil pulling up everything else across the complex, and that includes natural gas," he said.
While Ritterbusch joined two others in forecasting a draw in distillate stocks, 14 analysts polled by Dow Jones Newswires expect, on average, that the Department of Energy will Wednesday say stocks rose by 600,000 barrels in the week ending May 9.
Nymex June heating oil rose nearly 4% Tuesday to close at a record $3.6989 amid strong demand from Europe and Asia for distillates. A report released Tuesday found that European distillate inventories are down from the same time last year, overshadowing analyst forecasts of growing U.S. stocks. Heating oil prices have nearly doubled in the past year and are up 40% in the year to date. Crude oil also rose 1.3% to settle at $125.80.
Mild spring weather over the next couple of weeks in the big demand centers of the Northeast and Midwest isn't expected to spark much demand for natural gas for heating and cooling.
The National Weather Service was predicting below-normal temperatures from May 18 to May 26 across the eastern two-thirds of the continental U.S., especially the Upper Midwest, but it isn't expected to be cold enough to boost significant heating demand.
Meanwhile, "participants are anxiously awaiting the expected restart of the Independence hub facility this week," wrote Mike Fitzpatrick, a broker for MF Global in New York, in a note to clients.
The Independence Hub is a major deepwater U.S. Gulf of Mexico platform that accounted for about 8% of natural gas production from the Gulf. Production was suspended in April after a pipeline leak was discovered. The hub's operator, Enterprise Products Partners (EPD), said it expected to finish repairs and restart output in the middle of May.
A spokesman for Enterprise reiterated Tuesday that there was no change in the company's estimate of a mid-May restart.
An on-schedule resumption of output would help ease concerns that inadequate supplies of gas are going into storage in the so-called shoulder season, after heating demand ends and before demand for gas-fired electricity rises from air conditioner use.
However, if any restart delays are announced, "the market would get a jolt," said Schork Report publisher Stephen Schork.
Analysts say the next few weeks will be crucial for building up stocks for the winter, just in case a heat wave or hurricane forces a summer drawdown.
On Monday, Joe Bastardi, chief long-range and hurricane forecaster for AccuWeather.com said the upcoming U.S. hurricane season will show near-average number of named storms, but features threats to U.S. Gulf of Mexico oil infrastructure and a heightened risk of landfall along the U.S. East Coast.
FUTURES SETTLEMENT NET CHANGE Nymex June $11.422 +12.1c Nymex July $11.556 +12.5c Nymex Aug $11.640 +12.7c CASH HUB RANGE PREVIOUS DAY Henry Hub $11.11-$11.255 $11.28-$11.46 Transco 65 $11.1525-$11.40 $11.25-$11.45 Tex East M3 $11.85-$12.12 $12.07-$12.25 Transco Z6 $11.85-$11.97 $12.09-$12.20 SoCal $10.27-$10.525 $10.52-$10.65 El Paso Perm $9.275-$10.05 $9.65-$9.95 El Paso SJ $5.45-$7.65 $5.79-$6.65 Waha $9.77-$10.17 $9.85-$10.35 Katy $10.82-$10.905 $10.96-$11.09
-By Mark Long, Dow Jones Newswires; (201) 938-4427; mark.long@dowjones.com
(END) Dow Jones Newswires
05-13-08 1555ET
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