Producers cut back exploration; prices still face pressure in short term
Futures contracts suggest natural-gas, the worst performing major commodity this year, could see a big rebound when winter demand picks up later this year, putting pressure on producers which have sharply cut back on exploration.
On the New York Mercantile Exchange, natural gas for July delivery currently trades at about $3.80 per million British thermal units. But contracts for delivery at the end of December are trading more than 60% higher, at above $6. Futures contracts for delivery in 2010 also trade above $6.
The situation where the price of a commodity for future delivery is higher than for nearby contracts is called contango.
"The contango is the steepest I can recall," said John Killduff, an analyst at MF Global. "Natural gas could easily surpass $6 in the winter."Should such scenarios play out, winter natural-gas prices could approach, or even surpass $7, if investors keep pushing up winter contracts in the following months, analysts said....MORE