Bloomberg News

Natural Gas Declines to Seven-Week Low on Moderating Weather

June 17, 2011

June 17 (Bloomberg) -- Natural gas futures fell to a seven- week low on forecasts of moderating temperatures that may reduce demand for the power-plant fuel.

Gas posted the first weekly decline since mid-May after forecasters including Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly normal temperatures in the central U.S. from June 22 through July 1.

“You need to see consistent calls for above-normal temperatures and elevated cooling needs to offset the large amounts of gas production,” said Gene McGillian, an analyst and broker with Tradition Energy in Stamford, Connecticut. “The market is hemmed in here at the mid-$4 level.”

Natural gas for July delivery fell 8.7 cents, or 2 percent, to $4.325 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since May 20. The futures dropped 9.1 percent this week, the first weekly decline since the five-days ended May 20.

“There may be some minor support near $4.42, the point from which the final leg higher to $4.983 was launched, but once broken there is really no significant support until the psychological level of $4 is reached,” Mike Fitzpatrick, a partner with the Kilduff Group in New York, said in a note to clients today.

Midwest Weather

Mild weather in the Midwest may reduce air conditioner use in the next two weeks. The high temperature in Chicago on June 25 may be 71 degrees Fahrenheit (22 Celsius), 8 below normal, according to AccuWeather Inc. in State College, Pennsylvania.

Cooling demand in the north-central U.S. may be 62 percent below normal from June 23 through June 27, said David Salmon, a meteorologist at Weather Derivatives in Belton, Missouri, in a note to clients today.

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

Natural-gas prices may rise as high as $7.50 per million British thermal units before the end of August if higher-than- normal temperatures in the U.S. boosts energy demand, said John Snell, a managing director at Risk Management Inc, in an interview yesterday at the INTL FCStone Outlook Conference in Chicago.

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

Factory Report

Manufacturing in the Philadelphia region unexpectedly shrank in June for the first time in nine months, the city’s Federal Reserve Bank said yesterday, raising the risk that factory production may contribute less to the expansion. Some gas traders monitor economic data to gauge industrial demand for the fuel.

The bank’s general economic index fell to minus 7.7, the lowest since July 2009, from 3.9 the prior month. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 54 economists surveyed by Bloomberg News was 7.

Gas futures volume in electronic trading on the Nymex was 226,645 as of 2:40 p.m., compared with the three-month average of 319,000. Volume was a 324,184 yesterday. Open interest was 998,742. The three-month average open interest is 949,000.

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

--With assistance from Elizabeth Campbell in Chicago and Shobhana Chandra in Washington. Editors: Bill Banker, Joe Link

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net;

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


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