Bloomberg News

Natural Gas Drops Most in Six Weeks After Inventory Increase

June 16, 2011

June 16 (Bloomberg) -- Natural gas futures dropped the most in six weeks on speculation that U.S. supplies are adequate to meet summer demand from power plants.

Gas fell for a fourth day after the Energy Department said stockpiles rose 69 billion cubic feet in the week ended June 10 to 2.256 trillion, matching estimates made by analysts before the report was released. Gas reached a 10-month high on June 9 on forecasts for hotter-than-normal weather.

“It’s a seasonally low number, but we’ve had the heat and these last two reports priced into the market, and now that buying interest has gotten priced out,” said Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania. “The next couple of reports are probably going to be more bearish.”

Natural gas for July delivery fell 16.5 cents, or 3.6 percent, to settle at $4.412 per million British thermal units on the New York Mercantile Exchange, the biggest percentage loss since May 5. Prices have dropped 11 percent from a year ago.

Gas fell as low as $4.408, nearing the 200-day moving average of $4.403.

“Breaking the moving average will cause some shorts to enter the market,” said Kyle Cooper, director of research for IAF Advisors in Houston. “If we break the $4.40 mark, it’s going to look further down to the $4.35 area.”

The five-year average storage change for the week is an increase of 87 billion cubic feet, department data showed.

The stockpile increase “was supportive relative to an 87- bcf five-year average, but that much had already been discounted into the price and we think the market will quickly pivot to looking ahead to near-average builds in the next few weeks,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in an e-mail.

Gas Storage

Storage levels were 3.3 percent below the five-year average for the week, wider than a deficit of 2.6 percent in the previous report. Inventories were 10.9 percent below levels a year earlier, compared with 10.4 percent reported last week.

Temperatures in Washington tied an 1874 record of 102 degrees Fahrenheit (39 Celsius) on June 9. The weather in the East returned to normal this week.

A sample of scheduled gas deliveries to power plants in the U.S. and Canada shows shipments fell 1 percent to 17 million dekatherms (16.6 billion cubic feet), according to data compiled by Bloomberg as of 2:55 p.m.

U.S. nuclear-power production rose to the highest level in more than three months after reactors started in Illinois, Virginia and Wisconsin, the Nuclear Regulatory Commission reported.

Hot Weather

Power generation increased 159 megawatts from yesterday to 92,172 megawatts, or 91 percent of capacity, according to the NRC report today and data compiled by Bloomberg. That’s the most since March 3.

Power plants use about 30 percent of the nation’s gas supplies, according to the Energy Department.

The weather will be hotter than normal across the U.S. East and Midwest through June 30, according to Commodity Weather Group LLC in Bethesda, Maryland.

The high temperature in New York will be 86 degrees on June 19, 6 degrees above normal, according to AccuWeather Inc. in State College, Pennsylvania.

The South and mid-Atlantic may be warmer than normal in July and August, according to the latest 30- to 60-day forecast from MDA EarthSat Weather.

The most intense heat will build across Texas in July, Gaithersburg, Maryland-based MDA predicts. The East Coast as far north as Connecticut may be warmer than the 30-year average in the same period.

Gas futures volume in electronic trading on the Nymex was 265,530 as of 2:40 p.m., compared with the three-month average of 319,000. Volume was a 245,590 yesterday. Open interest was 1,012,430 contracts, down from a record 1,013,660 yesterday. The three-month average open interest is 947,000.

The exchange has a one-business-day delay in reporting open interest and full volume data.

--With assistance from Brian Sullivan in Boston and Christine Buurma in New York. Editors: Bill Banker, Joe Link

To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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