Natural gas price drops on supplies, weak demand

Natural gas prices plummeted nearly 8 percent Tuesday after a government report said U.S. production hit a record high.

Output of natural gas is rising at a time of weak demand because of mild winter weather, causing ample supplies to grow further.

The price of natural gas dropped by 21 cents to finish at $2.50 per 1,000 cubic feet in New York. It was 18 cents above the decade low that it hit 12 days ago. Prices had been rising after several gas companies said they will cut back on production. But it wasn’t enough to convince traders that the nation’s gas supplies will decline significantly.

The Energy Information Administration said Monday that natural gas production in the lower 48 states totaled 72.61 billion cubic feet per day in November, up 2.4 percent from October. November production set a fifth consecutive monthly record, Tradition Energy analyst Addison Armstrong said in an email. Natural gas inventories are well above the average level for this time of year.

Natural gas supplies have ballooned recently as companies tap vast reserves in shale formations holding oil and gas. Some estimates say the U.S. has enough natural gas to meet its needs for the next century.

The combination of increased production and huge supplies is likely to keep natural gas prices low for some time to come. That’s good news for consumers, whose heating and electric bills should fall eventually. Natural gas is used to heat about one-half of U.S. homes and to generate about a quarter of the nation’s electricity.

In other energy trading oil prices were little changed, as optimism about a new European treaty aimed at resolving the crippling debt crisis there was offset by weak U.S. economic data.

Investors hope that the European agreement can help stabilize the region’s economy by curbing overspending, jump-starting economic growth and creating jobs. That will mean more demand for oil.

But in the U.S. a private survey found that consumer confidence dropped in January after rising in the previous two months. Also home prices fell in November, indicating that the anemic housing market probably hasn’t hit bottom yet.

Benchmark oil fell 30 cents to end at $98.48 per barrel in New York after hitting $101.29 per barrel earlier in the day. Brent crude rose 23 cents to finish at $110.98 per barrel in London.

Heating oil rose 1 cent to end at $3.06 per gallon and gasoline futures rose 2 cents to finish at $2.89 per gallon.

At the pump, gasoline prices rose about a penny to a national average of $3.44 per gallon, according to AAA, Wright Express and Oil Price Information Service. That’s up about 17 cents from a month ago and 34 cents from a year ago. In Houston Tuesday, the average price rose to $3.370 from $3.343 Monday.