Natural gas prices spike 12 percent even with storage facilities bulging

Natural gas prices jump 12 percent

Natural gas demonstrated again how much it has split from the direction of crude, as prices spiked more than 11 percent despite an enormous glut in supply.

Crude prices fell for the second straight trading day.

Analysts at Goldman Sachs said prices for natural gas may even triple over the winter, though most energy experts believe there is a far greater chance that prices will plunge again.

There are two big factors that support the latter view, which would mean extremely cheap heating bills for a lot of people over the next few months.

The first is that natural gas in storage is 17 percent greater than it was last year and has even neared the maximum storage capacity in some places. And the U.S Energy Information Administration said in its short-term energy outlook that it expects another 12 percent buildup through October.

At the same time most meteorologists predict a very mild winter for large parts of the country. With demand already way down from industrial utility customers, the U.S. has an enormous amount of unused natural gas.

Meanwhile, managers of the United States Natural Gas fund, an exchange-traded fund that tracks natural gas prices, said it will again offer shares before the end of the month. The fund allows any investor to buy shares, which UNG uses to buy natural gas contracts on Nymex and the ICE Futures exchange.

The fund had run out of shares and in June, filed documents with the Securities and Exchange Commission seeking permission to offer another billion units.

Oil and natural gas have historically tracked one another as far as prices go, but this year has been a different story.

Benchmark crude for October delivery fell 61 cents to $68.68 a barrel. On Friday, the contract tumbled $2.65 to settle at $69.29.

A lot of pressure has been placed on the dollar-based crude because the dollar has rebounded in recent days. Oil prices have fallen about $4 during the last two trading days. Still, prices have doubled from earlier this year during what may have been the depth of the recession.

A lot of experts believe that optimism is premature because crude in storage, like natural gas, remains at very high levels.

There have been some signs of an economic recover, yet some warn that it will take some time for energy demand to return.

“At some point hope has to become a reality or prices will have to adjust accordingly,” said PFGBest analyst Phil Flynn.

At the pump, the average price for a gallon of regular gasoline fell a tenth of a cent to $2.572, according to auto club AAA, Wright Express and Oil Price Information Service. That’s 7.3 cents more than a month ago, but $1.22 less than at this time last year.

Gasoline for October delivery on the Nymex fell 2 cents to $1.7393 a gallon.

Prices have most certainly peaked for most motorists this year, barring some disruption in the Gulf of Mexico.

“The ‘driving season’ is over … and supplies are greater today than in May,” analyst and trader Stephen Schork wrote in his morning report.

In other Nymex trading, heating oil for October delivery was essentially flat at $1.7321 a gallon. Natural gas jumped 36.4 cents to $3.324 per 1,000 cubic feet.

In London, Brent crude fell 13 cents to $67.56 on the ICE Futures exchange.

Associated Press Writers Pablo Gorondi in Budapest, Hungary, Alex Kennedy in Singapore and Stephen Bernard in New York contributed to this report.