Bloomberg News

U.S. Natural Gas Advances on Forecasts for Colder Weather

October 05, 2012

Natural gas futures declined in New York for the second time in three days as inventories of the fuel headed toward an end-of-season record.

Gas dropped 0.3 percent. Stockpiles rose by 77 billion cubic feet to 3.653 trillion last week, Energy Department data showed yesterday. Analysts had predicted a gain of 73 billion. Inventory levels may reach an all-time high of 3.95 trillion cubic feet before cold weather boosts demand for the heating fuel, according to the department.

“Supplies are still approaching a record high,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “Pipelines bringing shale gas from all over the country are adding to stockpiles.”

Natural gas for November delivery fell 1 cent to settle at $3.396 per million British thermal units on the New York Mercantile Exchange. The futures have gained 14 percent this year and 2.3 percent this week, capping a second weekly increase.

November $3.75 calls, bets that prices will rise, were the most active gas options in electronic trading. They were down 0.6 cent to 2 cents per million Btu on volume of 617 contracts at 3:06 p.m.

Stockpiles were 8.3 percent above the five-year average for the week ended Sept. 28, according to the Energy Department.

Cool weather over the next two weeks may give way to above- normal temperatures in the northern tier of the U.S. from Oct. 15 through Oct. 19, according to Commodity Weather Group LLC in Bethesda, Maryland.

Winter Forecast

The high in New York on Oct. 18 may be 71 degrees Fahrenheit (22 Celsius), 8 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The high in Chicago may be 69 degrees, 7 more than the usual reading.

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

The U.S. winter may be the second in a row to produce low energy demand for heating even while falling short of the record high temperatures of the 2011-2012 season, MDA EarthSat Weather predicted in an Oct. 2 outlook.

The winter, measured by meteorologists as running from December through February, will probably have temperatures above the 10- and 30-year normal ranges, according to MDA in Gaithersburg, Maryland. The result may be less natural gas, heating oil and electricity needed to warm homes and businesses, MDA said.

Production Report

The number of rigs drilling for natural gas in the U.S. rose by two to 437 this week, according to data released today by Baker Hughes Inc. in Houston. The rig count is down 46 percent this year.

U.S. natural gas production rose to a six-month high in July as new wells in New Mexico were completed and Gulf of Mexico platforms returned to service after a tropical storm, the Energy Department said Sept. 28.

Gross output, including amounts flared and used for pressuring, increased 0.4 percent, to 72.58 billion cubic feet a day in the lower 48 states, the most since January, from a revised 72.29 billion in June, the department’s Energy Information Administration said in the monthly EIA-914 report. Production in the contiguous states gained for the third time in four months.

“Storage and production are still at or near record highs and the weather outlook for mid-October is moderating,” wrote Mike Fitzpatrick, editor of the Energy OverView newsletter in New York. “With so few fundamental price drivers, the necessary conclusion must be that positioning was, and probably still is, heavily weighted to the short side.”

Energy Independence

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first six months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

Gas futures volume in electronic trading on the Nymex was 339,657 as of 2:37 p.m., compared with the three-month average of 381,000. Volume was 396,399 yesterday. Open interest was 1.17 million contracts. The three-month average is 1.11 million.

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

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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