Natural gas prices drop to 2010 low

NEW YORK - Natural gas prices slumped Thursday to a record low for the year after the government reported an increase in the nation's supplies.

The gas-futures contract for September delivery gave up 5.4 cents to settle at $3.817 per 1,000 cubic feet on the New York Mercantile Exchange.

Earlier in the day, it hit a 2010 low of $3.794.

The price of natural gas, which is used to produce electricity, tends to drop around this time of year as the weather begins to cool and people use their air conditioners less.

Analysts said natural gas prices should continue to fall over the next few months, and that should eventually push down energy costs for homes and businesses.

Meanwhile, retail gasoline prices continue to be pushed down by lower oil prices since the beginning of August.

Pump prices have dropped for 16 straight days. They fell less than a penny on Thursday to a national average of $2.688 for a gallon of unleaded regular, according to AAA, Wright Express Corp., and the Oil Price Information Service. A gallon of gasoline is 5.4 cents cheaper than a month ago but 6.6 cents more expensive than the same time last year.

Natural gas prices typically increase again later in the year as winter approaches and homeowners crank up the heat.

But overall, PFGBest analyst Phil Flynn said, natural gas should become cheaper as drillers tap into larger sections of underground shale, such as in Pennsylvania's Marcellus Shale. America's vast deposits of natural gas shale are just beginning to be exploited, and the industry is expected to produce much more in coming years.

"Last September, we saw natural gas prices crash down to about $2.50 [per 1,000 cubic feet], and we saw producers cut back a bit" and waited for prices to rebound, Flynn said.

"But because of shale gas, that point of pain - the point where they cut back - has been dropping," he said.

Oil prices increased for a second day after six straight trading days of declines, as the dollar fell and investors latched onto a government report that new requests for unemployment benefits fell sharply last week.

Benchmark oil for October delivery added 84 cents to settle at $73.36 on the Nymex. Oil has tumbled from a high of $82.55 earlier this month.