UNITED STATES: Natural Gas Falls on Speculation Weaker Economy to Pare Dema

UNITED STATES: Natural Gas Falls on Speculation Weaker Economy to Pare Dema
Natural gas fell for a fifth day amid speculation an emergency interest rate cut by the Federal Reserve won't be enough to prevent the U.S. economy from sliding into recession, paring demand for gas.

The central bank reduced the target overnight lending rate to 3.5 percent from 4.25 percent, the agency said in a statement in Washington. U.S. stocks fell on concern the economy is shrinking and the interest rate cut will do little to revive it.

``The country's industrial heart has basically seized; if the U.S. isn't in recession, Michigan certainly is and Ohio, that whole area,'' said John Kilduff, vice president of risk management at MF Global Ltd. in New York. ``You should start to see production cuts, shifts being cut and reduced usage of natural gas.''

Gas for February delivery fell 29.3 cents, or 3.7 percent, to $7.70 per million British thermal units at 12:14 p.m. on the New York Mercantile Exchange. It is the largest percentage decline since gas slipped 4.7 percent on Nov. 28. Before today prices had risen 9 percent over the past year, lagging behind crude oil, which soared 77 percent.

Dearborn, Michigan-based Ford Motor Co., the second-biggest U.S. automaker, said last month it will reduce first-quarter production by 7.4 percent because of slowing sales.

The ``heartland is really feeling the pinch at the moment,'' said Kilduff.

As carmakers reduce their need for natural gas to operate plants, steel and automakers follow, Kilduff said.

Gas prices are likely to fall toward $7 per million Btu over the next several weeks as the economy slows and peak winter demand ebbs, said Kilduff.

Industrial Demand
Industrial and commercial demand combine for 43 percent of U.S. gas consumption, while electric-power generation accounts for 29 percent of use, according to the U.S. Energy Department.


``Investors are getting crushed on the equity side, they're getting out because they need the money for other stuff,'' said Michael Rose, trading director at Angus Jackson Inc. in Fort Lauderdale, Florida. ``There is no real trend in natural gas, so that's the first position they pitch.''

Gas also declined on expectations higher temperatures next week would curb demand at the same time supplies appear to be ample to meet needs for the rest of the U.S. winter.

Warmer-than-normal weather will probably replace the lower temperatures now lingering in the eastern two-thirds of the U.S. by Jan. 27, the Climate Prediction Center in Camp Springs, Maryland, said in a 10-day forecast released yesterday.

Ample Inventories
Inventories were 2.691 trillion cubic feet, or 6.7 percent above the five-year average, in the week ended Jan. 11, according to an Energy Department report on Jan. 17.

About 2 trillion cubic feet is used from storage during the so-called withdrawal season, which runs from Nov. 1 to March 31. Stockpiles probably declined 155 billion cubic feet in the week ended Jan. 18, according to the median five analyst estimates compiled by Bloomberg. The average change for the same week over the past five years is a decline of 161 billion cubic feet, according to Energy Department data.

The department is scheduled to release its weekly storage report on supplies Jan. 24 at 10:30 a.m. in Washington.


By Reg Curren
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