Bloomberg News

Natural Gas Drops to Decade Low as Mild Weather Cuts Fuel Demand

April 10, 2012

Natural gas futures slid to a 10- year low for a second day as forecasts for mild weather across the eastern U.S. starting next week signaled reduce fuel demand.

Gas fell as much as 2.5 percent. Temperatures from the Mississippi River to the East Coast will be normal or above normal from April 15 through April 24, according to MDA EarthSat Weather in Gaithersburg, Maryland. Unusually mild weather and record production have driven gas prices to decade lows.

“Until we start to see signs that production levels are being tapered off or an increase in the seasonal demand factor, the market is going to skim near the 10-year lows,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Natural gas for May delivery declined 4.5 cents, or 2.1 percent, to $2.062 per million British thermal units at 10:51 a.m. on the New York Mercantile Exchange. Gas dropped to $2.054 per million Btu, the lowest intraday price since Feb. 6, 2002.

Gas, down 31 percent this year, is the worst performer on the Standard & Poor’s GSCI (SPGSCI) commodity index.

The low temperature in Philadelphia on April 16 will be 57 degrees Fahrenheit (14 degrees Celsius), 13 above normal, according to AccuWeather Inc. in State College, Pennsylvania. St. Louis may see a low of 59 degrees, 15 above normal.

Heater Use

Demand for heat in the U.S. will be 12 percent below normal for the week ending April 17, according to Weather Derivatives. The Belton, Missouri-based forecaster estimated that demand during the winter heating season was 18 percent below normal through April 7.

About 51 percent of U.S. households use gas for heating. Fuel consumption typically slumps after the winter heating season and before hot weather drives demand from power plants to run air conditioners.

“Significant cooling demand is still several weeks distant, as well, so selling pressure should continue unabated, at least for the moment,” Michael Fitzpatrick, a partner at the Kilduff Group, an energy advisory firm in New York, said in a client note today. “The current stream of data on storage, production and drilling only reinforces expectations for more downside.”

Gas output from the lower 48 states increased 0.5 percent in January to 72.85 billion cubic feet a day from the prior month, the Energy Department’s Energy Information Administration said in its monthly EIA-914 report on March 29. Production rose every month but one since July as drillers shifted operations to more profitable liquid-rich shale deposits.

The number of rigs drilling for gas fell 11 to 647 last week, the lowest since May 2002, according to Baker Hughes Inc. The oil-rig count gained by 11 to 1,329, representing 67 percent of the total, according to the Houston-based oil-services company.

U.S. stockpiles totaled 2.479 trillion cubic feet in the week ended March 30, a record for that time of the year, according to the Energy Department. A surplus of the fuel to the five-week average widened to 61 percent, the most in six years, from 59 percent the previous week.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net.

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


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