Natural gas futures dropped from a 10-month high in New York on forecasts of moderating weather that would reduce demand for the heating fuel.
Gas slid as much as 1.1 percent after rising 3.7 percent yesterday. Temperatures may be normal or above normal across most of the lower 48 states through Oct. 26, according to Commodity Weather Group LLC in Bethesda, Maryland. Heating demand in the U.S. may be 29 percent below normal from Oct. 18 through Oct. 22, data from Weather Derivatives show.
“We’re seeing some slackness in demand ahead,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “The market is working off some of yesterday’s momentum.”
Natural gas for November delivery fell 3 cents, or 0.8 percent, to $3.574 per million British thermal units at 1:17 p.m. on the New York Mercantile Exchange. The futures have climbed 5.2 percent this week, heading for a third weekly gain, and are up 2.4 percent from a year ago. Prices rose to $3.604 per million Btu yesterday, the highest settlement since Dec. 1.
December $4.60 calls, bets that prices will rise, were the most active gas options in electronic trading. They were 0.6 cent lower at 1.5 cents on volume of 937 contracts as of 1:18 p.m. Calls accounted for 60 percent of options volume.
The high in New York on Oct. 19 may be 68 degrees Fahrenheit (20 Celsius), 6 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The high in Des Moines, Iowa, may be 65 degrees, 3 more than the usual reading.
About 50 percent of U.S. households use gas for heating, according to the Energy Department.
This winter may be the second in a row to produce below- normal energy demand for heating even while falling short of the 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.
Goldman Sachs Group Inc. said investors who bought U.S. natural gas for summer 2013 on its advice in April should sell now to make a 20 percent profit.
Goldman closed its recommendation to buy the futures after they exceeded its price target of $4 per million British thermal units, according to a report dated yesterday. Prices on the Nymex were at $3.36 when the bank suggested investors buy, Goldman said.
The amount of gas that utilities burn in place of coal in 2013 will be “substantially” reduced as lower drilling activity this year and increased winter heating demand after a mild 2011-12 season erode supply, Goldman said.
U.S. power plants switched to gas from coal at an unprecedented rate, supporting prices that are poised for a third straight quarter of gains.
“We expected that natural gas prices would likely remain depressed for much of the summer of 2012 in order to motivate sufficient coal-to-gas substitution,” David Greely, a New York- based analyst at Goldman, said in the report. “We anticipated that these low prices would also drive a number of additional tightening shifts in the supply-demand balance.”
Inventories may reach a record 3.903 trillion cubic feet by Oct. 31, the Energy Department said Oct. 10 in its monthly Short-Term Energy Outlook.
U.S. natural gas production in 2012 will average a record 68.85 billion cubic feet a day, up 4 percent from last year, the department said.
The number of rigs drilling for natural gas in the U.S. fell by 15 to 422 this week, the lowest level since June 1999, according to data released today by Baker Hughes Inc. in Houston. The rig count is down 48 percent this year.
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.
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