Bloomberg News

Natural Gas Futures Decline on Outlook for U.S. Inventories

October 17, 2011

Oct. 17 (Bloomberg) -- Natural gas futures dropped for the first time in three days in New York on speculation that stockpiles will approach a record before winter heating demand reduces inventories.

Gas futures slipped 0.4 percent as an Energy Department report last week showed that U.S. stockpiles climbed by 112 billion cubic feet in the week ended Oct. 7, more than a five- year average gain of 72 billion. Supplies may rise to 3.77 trillion at the end of October, according to the department, near a record 3.84 trillion last November, Bloomberg data show.

“It’s hard to find something really bullish about gas when we’ve had stockpile surpluses increasing against the five-year average,” said Peter Beutel, president of Cameron Hanover Inc., an energy advisory company in New Canaan, Connecticut. “It looks like we’re going to have near-record amounts of natural gas in storage.”

Natural gas for November delivery fell 1.5 cents to settle at $3.688 per million British thermal units on the New York Mercantile Exchange. Gas has declined 16 percent this year.

November $3.50 puts, bets that prices will fall, were the most active options in electronic trading. The puts were down 0.4 cent 2.8 cents per million Btu on volume of 782 lots.

The price difference, or spread, between November- and December-delivery futures narrowed 4.2 cents to 21.5 cents.

Gas stockpiles as of Oct. 7 totaled 3.521 trillion cubic feet, 2 percent above the five-year average and 1.6 percent below levels a year earlier.

Manufacturing Report

Manufacturing in the New York region contracted in October at a faster pace than forecast, according to Federal Reserve Bank of New York data released today. The bank’s general economic index was minus 8.5 compared with minus 8.8 in September. Economists projected an improvement to minus 4, based on the median of 53 forecasts in a Bloomberg News survey.

Readings less than zero signal companies in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back.

Output at factories, mines and utilities across the U.S. increased 0.2 percent in September, in line with the median estimate in a Bloomberg News survey, after being little changed in August, figures from the Federal Reserve showed today.

Industrial demand accounts for about 27 percent of U.S. natural gas consumption, according to the Energy Department.

Temperatures may be below normal in parts of the central and eastern U.S. through Oct. 31, according to MDA EarthSat Weather in Gaithersburg, Maryland.

Cooler Weather

The low in St. Louis, Missouri, on Oct. 21 may be 39 degrees Fahrenheit (4 Celsius), 4 below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Washington may be 46 degrees, 3 below normal.

Heating demand in the north-central U.S. may be 30 percent above normal on Oct. 21, according to Weather Derivatives in Belton, Missouri. Heating needs in the south-central region may be 80 percent above normal.

A weather system along the East Coast “will be strong enough to pull chillier air southward toward the Gulf Coast on Tuesday, then spread east mid-week,” Paul Pastelok, senior meteorologist at AccuWeather, said in a note to clients.

About 51 percent of U.S. households use natural gas for heating, according to the Energy Department.

Kinder Morgan Inc. said yesterday it agreed to buy El Paso Corp. for $21.1 billion in a transaction that would create the largest natural-gas pipeline network in the U.S.

Kinder Purchase

“We believe natural gas is going to play an increasingly integral role in North America,” Richard Kinder, Kinder Morgan’s chairman and chief executive officer, in a statement announcing the deal yesterday. “If America is serious about reducing carbon emissions to benefit the environment, and reducing its dependence on foreign oil, natural gas is absolutely the best readily available option.”

Natural gas futures volume in electronic trading on the Nymex was 302,520 as of 2:39 p.m., compared with the three-month average of 305,000. Volume was 475,267 on Oct. 14. Open interest was 974,026 contracts, compared with the three-month average of 969,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

--With assistance from Bob Willis in Washington, Gene Laverty in Calgary and Joe Carroll in Chicago. Editors: Bill Banker, Charlotte Porter

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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