Natural Gas Trade settlement helps improve heating oil

The natural gas market in New York as head shrinks prices, the fall of the first three years of history, helping to expand trade in heating fuel.

Open interest in gas futures and options has fallen to its lowest level in more than five years, while heating oil contracts have jumped the most since at least 1995, according to data from the Commodity Futures Trading Commission. Gas has fallen 52 percent since 2007, the most recent year in which the fuel purchased in the New York Mercantile Exchange.

The increase in gas production is to curb the price changes that traders seek to boost returns while the prospects for U.S. economic recovery are driving the fluctuations in the heating oil that is refined from crude oil. Gas production in the U.S., intensified by the drilling of the board, you can jump 2.5 percent this year, according to the Department of Energy. Supplies have been in a surplus to the average of five every week but one since August 2008.

"Natural gas seems to be installed in a situation of structural oversupply," saidAntoine Halff, director of energy research in New York, USA Newedge brokerage LLC. "The perception is that the heating oil market is subject to significant changes to be an excess supply or insufficient."

Gas for January delivery rose 2.9 cents, or 0.7 percent, to 4,298 dollars per million British thermal units at 9:27 am on the Nymex. Based gas closer to the expiry of the contract was between $ 3,212 and $ 6,108 this year. Heating oil gained 0.26 cent, or 0.2 percent, to $ 2.4092 a gallon. The contract for the next month ranged between $ 1.8272 and $ 2.4571 this year.

Declining Interest

Open interest, or number of contracts or options that are not closed or delivered on gas futures and options contracts fell to 828,690 from November 23 to 44 percent from September 2006, according to the CFTC. For heating oil, which was 425,071, nearly 15-year high of 449,980 set on October 5.

Heating oil, call a middle distillate oil, is moving amid signs of U.S. economic recovery is gaining momentum, fueling demand for commodities. Oil trading at $ 110 per barrel in 2012, Goldman Sachs Group Inc. said yesterday. Morgan Stanley projected to increase to $ 100 a barrel next year. It was at $ 86.49 a barrel on the Nymex to 9:27 am

U.S. manufacturing extended for a 16 consecutive month in November, a report yesterday from the Institute for Supply Management showed. Industrial production also grew in the United Kingdom and China, according to separate reports.

Production Slate

"Since 2008 there has been a view that the spirits may be closely linked to economic growth," saidHalff. "The distillate market has also become global in new ways, while the natural gas market has been de-globalized due to the supply board."

The production of shale wells in the areas where rock formations are fractured and injected with water, sand and chemicals to free the trapped gas will represent 34 percent of U.S. production in 2035, doubled from 17 percent in 2008, according to the Energy Department in Washington. Proven reserves in 2009 soared to the highest level since 1971, the department said in a report on 30 November. Gas in storage reached a record 3.843 trillion cubic feet in the week ended Nov. 12.

"When you see excess supply we have in the natural gas and see the levels of production, you think: what is happening here," said Mike Rose, director of energy operations of Angus Jackson Inc. in Fort Lauderdale, Florida . "The producers are drilling at a dizzying pace."

"Widowmaker"

Fuel inventories in the week ended Nov. 19 were 9.5 percent above the average of five years, compared with 9.3 percent the previous week, the Energy Department said on 24 November. Distillate fuel supplies fell by 10 percent from a 27 - year high of 176 million barrels reached in August, the Department report showed yesterday.

"Natural gas is used for The Widowmaker, where if the offer is reduced prices could rise to $ 10 or $ 15," Charlie said Katz, a partner and operator of natural gas to the First New York Securities LLC in New York. "With all the production we have now, people do not see that kind of upside potential."

Oil traded in New York will average $ 4 million BTU in 2011, compared with a previous forecast of $ 5.25, Goldman Sachs analysts led by Samantha Dart in London, said yesterday. Bank of America, Merrill Lynch said on November 23 is "downside risks" to a projected $ 5 for next year.