Oil N' Gold Focus: Despite A Rebound From 6-year Low, Natural Gas' Outlook Remains Gloomy

Despite A Rebound From 6-year Low, Natural Gas' Outlook Remains Gloomy

Natural gas rose 5.2% to close at 3.995 Thursday after plummeting to 6-year low at 3.759 earlier. According to the report by US Energy Department, industrial gas use, which accounts for 29% of natural gas consumption, will drop 6% to 17.1 bcf per day in 2009.

The benchmark then generated some buying interest as it was oversold as well as stimulated by a better-than-expected inventory report. Storage was reduced 112 bcf for the week ended Mar 6, compared with consensus of 103 bcf draw and the biggest drop in a month, to 1681 bcf. However, inventory was still 13% above 5-year average.

Natural gas price has tumbled 29% year-to-date and over 70% from 13.694 peak in July 2008. The collapse in price discourages investment and the number of natural gas rigs in the US dropped to 916 as of last Friday. While we believe supply contraction will eventually cause tightening in gas market and lend support price, the rapid deterioration in global economy and shrinkage in business activities greatly increase the uncertainty on when it will be achieved.