Bloomberg News

Natural Gas Futures Slide on Forecasts of Milder U.S. Weather

November 09, 2012

Natural gas futures dropped in New York, capping a weekly decline, as forecasts showed warmer-than- normal weather that may reduce demand for the heating fuel.

Gas slipped 2.9 percent after Commodity Weather Group LLC in Bethesda, Maryland, predicted normal or above-normal temperatures across most of the continental U.S. from Nov. 14 through Nov. 23. Inventories of the fuel climbed to a record 3.929 trillion cubic feet last week, according to an Energy Department report yesterday.

“We have some mild weather headed our way,” said Brad Florer, a trader at Kottke Associates LLC in Louisville, Kentucky. “The overall storage situation is going to keep the upside limited. It’s a bearish weight on the market.”

Natural gas for December delivery fell 10.5 cents to settle at $3.503 per million British thermal units on the New York Mercantile Exchange. The futures dropped 1.4 percent this week and are down 4.1 percent from a year ago. Gas rose to $3.82 per million Btu in intraday trading on Oct. 30, the highest price since Nov. 4, 2011.

December $3.25 puts were the most active gas options in electronic trading. They were 0.8 cent higher at 1.9 cents on volume of 1,276 contracts as of 3:42 p.m. Puts accounted for 39 percent of options volume.

Stockpiles were 6.6 percent above the five-year average in the week ended Nov. 2, yesterday’s report showed. The surplus has declined from a six-year high of 61 percent in March.

The low in Chicago on Nov. 19 may be 39 degrees Fahrenheit (4 Celsius), 6 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in New York may be 41 degrees, matching the usual reading.

Mild Weather

Heating demand in the U.S. may be 2 percent below normal from Nov. 15 through Nov. 19, according to Weather Derivatives in Belton, Missouri. About 50 percent of U.S. households use gas for heating, according to the Energy Department.

“Between the warmth and the all-time high amount of supply the market is seeing right now, that would explain the persistent bearish sentiment,” Alan Lammey, an energy analyst at WeatherBell Analytics LLC in Houston, said in an e-mail today.

A lack of Pacific Ocean warming and of blocking patterns in the Atlantic will probably mean warmer-than-normal weather in the eastern U.S. for the next three months, Todd Crawford, chief meteorologist at WSI, said in an Oct. 22 seasonal forecast.

Temperatures in the East may be about 2 degrees Fahrenheit (1 Celsius) above normal from November through January, while the Northwest cools, Crawford said.

El Nino

The U.S. Climate Prediction Center has dropped its El Nino watch, signaling that warming in the Pacific isn’t expected through the next four months. The warming has been blamed for wetter winters in the southern U.S. and milder weather in some northern states.

Last winter was the fourth-warmest on record in the contiguous 48 states, according to the center in Asheville, North Carolina. The lack of cold helped send natural gas futures to a 10-year low in April.

Marketed gas production will average a record 68.84 billion cubic feet a day this year, up 4 percent from 2011, the department said Nov. 6 in its monthly Short-Term Energy Outlook. The forecast for total gas consumption fell to 69.75 billion cubic feet a day from 69.76 billion predicted a month earlier.

The number of rigs drilling for gas in the U.S. dropped by 11 to 413 in a weekly report released today by Baker Hughes Inc. in Houston. The total has tumbled 49 percent this year.

Gas Production

“EIA expects that growth in associated gas from crude oil, as well as continued drilling in liquids-rich areas, will help offset the decline in drilling activity,” the Energy Department’s Energy Information Administration said in the Short-Term Energy Outlook.

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 247,046 as of 2:37 p.m., compared with the three-month average of 371,000. Volume was 303,552 yesterday. Open interest was 1.17 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.

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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