Bloomberg News

Gas Futures Fluctuate on Outlook for Moderating Weather

November 19, 2012

Natural gas futures dropped in New York for the second time in three days on forecasts for warmer- than-normal weather that would cut heating-fuel consumption.

Gas dropped 1.9 percent after MDA Weather Services in Gaithersburg, Maryland, said temperatures may be above normal across most of the contiguous U.S. states through Nov. 23, with normal weather the following week. Heating demand in the U.S. may be 35 percent lower than usual on Nov. 22, data from Weather Derivatives in Belton, Missouri, show.

“We’re probably going to get warmer weather down the road, and that’s keeping a lid on prices,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “Futures are still holding up pretty well at these levels, though.”

Natural gas for December delivery fell 7.1 cents to settle at $3.719 per million British thermal units on the New York Mercantile Exchange. The futures are up 12 percent from a year ago. Prices advanced to $3.835 per million Btu in electronic trading, the highest intraday price since Nov. 4, 2011.

December $4 calls were the most active gas options in electronic trading. They were 1.3 cents lower at 1.2 cents on volume of 652 contracts as of 2:43 p.m. Calls accounted for 60 percent of options volume.

Prices have failed to settle above the 62 percent Fibonacci retracement level of $3.806, Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania, said in a note to clients today. Fibonacci analysis is based on the theory that prices tend to drop or climb by certain percentages after reaching a high or low.

Hedge Funds

Gas has climbed 25 percent since Sept. 26 on speculation that colder weather will increase heater use.

Hedge funds sold natural gas to utilities last week as colder-than-normal weather bolstered heating demand and pushed prices to the highest level in more than a year.

Money managers reduced net-long positions, or wagers on rising prices, by 6.4 percent in the week ended Nov. 13, according to the Commodity Futures Trading Commission’s Commitments of Traders report Nov. 16. Commercial users including power generators increased buying by 11 percent.

Citigroup Inc. raised its forecast for 2013 natural gas prices by 6 percent to $3.55 per million Btu, citing lower-than- expected stockpiles as power plants switched to gas from coal, according to a report from the bank.

The low in New York on Nov. 22 may be 45 degrees Fahrenheit (7 Celsius), 5 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago may be 39 degrees, 7 more than the usual reading.

Weather Outlook

About 50 percent of U.S. households use gas for heating, according to the Energy Department.

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.

Gas inventories were 5.6 percent above the five-year average in the week ended Nov. 9, according to the Energy Department. The surplus was down from a six-year high of 61 percent in March. Supplies fell 18 billion cubic feet last week to 3.911 trillion, the earliest seasonal decline since 2007.

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

Gas Drilling

The number of rigs drilling for gas in the U.S. rose by four to 417 in the week ended Nov. 16, according to data from Baker Hughes Inc. in Houston. The rig count is down 48 percent this year.

“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 monthly 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 220,389 as of 2:49 p.m., compared with the three-month average of 367,000. Volume was 309,232 on Nov. 16. Open interest was 1.16 million contracts. The three-month average is 1.14 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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