Gas for September delivery dropped 10 cents to $2.702 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since June 25. The futures slid 0.6 percent this week, capping losses for a fifth straight week. Gas is down 9.6 percent this year.
Natural gas is expected to be oversupplied in 2012 and will pressure prices
Natural gas will likely be over-supplied in 2012 despite a slowdown in production. Slowing demand is however likely to build higher year-over-year inventories which will impact prices. Slowing gas-directed drilling may help tighten balances towards the end of the year.
2012 average year price:
$2.40 / million BTUs
2013 average year price:
$3.95 / million BTUs
analysts at Goldman Sachs
analysts at Goldman Sachs to reaffirm their prediction for a natural gas price rebound in the summer of 2013, although the upcoming summer still remains a challenge.
The rally in summer 2012 prices "has gone too far," as lower prices are still needed to "motivate the record high levels of coal-to-gas substitution necessary to avoid storage capacity this summer
Canadian imports are expected to stabilize in 2013-2014, before the potential pull of liquefied natural gas exports, which would again reduce the amount of gas available to import into the US,
Goldman issued a call for hedging longer-dated natural gas by end-users in advance of the rebound.
"Specifically, we expect the slower production growth combined with a return to more normal winter weather next year will reduce the amount of price-induced coal-to-gas substitution required," the analysts said. Thus, prices can move back to $4/MMBtu "relatively quickly as the amount of switching is reduced to around 2.5 Bcf/d."
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