Natural gas futures dropped in New York for the first time in five days as the outlook for milder weather and East Coast power failures signaled reduced demand for the fuel.
Gas fell 3.9 percent, the biggest one-day decline in nine days, as the National Weather Service predicted normal or above- normal temperatures in most of the lower 48 states over the next six to 14 days. Gas inventories rose to an all-time high last week, while about 3.63 million customers were without power as of 9 a.m. today because of damage caused by Hurricane Sandy, which made landfall in New Jersey on Oct. 29.
“The weather report was not great and you still have demand loss because of Sandy,” said Kyle Cooper, director of commodities research at IAF Advisors, a Houston consulting firm. “We will still be at record inventory levels for the next couple weeks.”
Natural gas for December delivery declined 14.5 cents to settle at $3.554 per million British thermal units on the New York Mercantile Exchange. Gas gained 4.5 percent this week and is down 5.2 percent from a year ago.
December $4 calls were the most active options in electronic trading. They fell 2.1 cents to 1.9 cents on volume of 2,006 lots at 2:40 p.m.
The futures extended losses after a midday National Weather Service update showed that “storminess in the middle of next week along the middle and northern Atlantic coast of the U.S. will be fairly tame,” David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri, said in an e-mail.
Northeast precipitation should be light at worst and largely offshore with no snow, though the western and central Midwest may still see severe storms, he said.
The potential development of a nor’easter based on a cold front on the U.S. Pacific Coast may keep East Coast temperatures about 3 to 5 degrees Fahrenheit (1.7 to 2.8 Celsius) below normal from Nov. 7-11, according to Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland. Temperatures from Maine to Virginia are then expected to be about 3 degrees above normal from Nov. 12 to Nov. 16, which may be enough to keep overnight heating demand lower, he said.
November signals the traditional start of the U.S. heating season, when rising fuel consumption to keep homes and businesses warm sends demand to an annual peak during the winter months. About 50 percent of households rely on gas for heating, Energy Department data show.
Sandy caused unprecedented strain on parts of the Eastern U.S. power grids as hours of rain, wind and record tides bombarded equipment.
Flooding was the “more damaging aspect” of Sandy because it caused short circuiting, explosions or corrosion of equipment, Anthony Yuen, a strategist at Citigroup Inc. in New York, said in a note to clients yesterday. The amount of gas used for power generation may have dropped by as much as 11.4 billion cubic feet, he said.
While energy demand is recovering slowly, “supply is bouncing back faster,” as nuclear production comes back online, Yuen said.
Nuclear-power generation in the Northeast rose by 986 megawatts from yesterday to 16,981 megawatts, or 68 percent of capacity, as reactors were returned to service, according to U.S. Nuclear Regulatory Commission data compiled by Bloomberg.
U.S. gas stockpiles rose 65 billion cubic feet in the week ended Oct. 26 to 3.908 trillion, an all-time high based on Energy Department data going back to 1993. Supplies were 7.1 percent above the five-year average for the week.
Inventories will probably set records in the next couple of government reports and remain at seasonal highs into early December before heating demand picks up, Cooper said.
Gas production in the U.S. fell 3.4 percent in August to 76.6 billion cubic feet a day from a revised 79.33 billion as Hurricane Isaac prompted evacuations from platforms and drilling rigs in the Gulf of Mexico, the Energy Department said today. Output in the lower 48 states slid 0.2 percent to 72.55 billion cubic feet a day.
The number of rigs drilling for gas rose by 8 this week to 424, Baker Hughes Inc. (BHI:US) data today showed. The rig count is down 48 percent this year.
Gas futures volume in electronic trading on the Nymex was 254,845 as of 2:46 p.m., compared with the three-month average of 384,000. Volume was 272,918 yesterday. Open interest was 1.19 million contracts. The three-month average is 1.13 million.
The exchange has a one-business-day delay in reporting full volume and open interest data.
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