Bloomberg News

Natural Gas Futures Tumble After Inventories Advance

November 29, 2012

Natural gas futures tumbled in New York, heading for the biggest weekly decline since June, after a government report showed an unexpected gain in U.S. stockpiles as mild weather reduced demand.

Gas dropped 4 percent after an Energy Department report showed supplies rose by 4 billion cubic feet last week to 3.877 trillion cubic feet, the latest seasonal gain since 2009. Analyst estimates compiled by Bloomberg showed a decline of 9 billion cubic feet. Gas has slid 7.2 percent on moderating temperatures after reaching a one-year high on Nov. 23.

“That’s a pretty bearish inventory number,” said Gordy Elliott, a risk-management specialist at FC Stone LLC in St. Louis Park, Minnesota. “December forecasts have turned warmer and there are no supply issues at all. This storage report could be the thing that breaks the market.”

Natural gas for January delivery fell 15.3 cents to settle at $3.648 per million British thermal units on the New York Mercantile Exchange. Gas futures have dropped 6.5 percent this week, heading for the biggest decline since the seven days ended June 1.

February $3.50 puts were the most active gas options in electronic trading. They were 4.4 cents higher at 13.4 cents on volume of 2,510 contracts as of 3:07 p.m. Puts accounted for 57 percent of options volume.

The five-year average gas stockpile change for the week is a decline of 18 billion cubic feet, department data show. A surplus to the five-year average rose to 5.2 percent from 4.5 percent the previous week, widening for the first time since the week ended Oct. 26.

Supply Report

Supplies were 0.7 percent above year-earlier inventories, compared with 0.6 percent the previous week. Stockpiles rose by 2 billion cubic feet in the week ended Nov. 27, 2009.

The inventory data may be “reinforcing the market’s concern over the warming trend in temperatures and the likelihood of further bearish storage reports in the weeks ahead,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients today.

MDA Weather Services in Gaithersburg, Maryland, predicted above-normal temperatures across most of the contiguous 48 states through Dec. 8.

The low in New York on Dec. 4 may be 47 degrees Fahrenheit (8 Celsius), 11 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago may be 30 degrees, 4 more than the usual reading.

Heater Use

Heating demand in the U.S. may be 25 percent below normal from Dec. 5 through Dec. 9, according to Weather Derivatives in Belton, Missouri. Demand was 18 percent below the usual level in the week ended Nov. 24, the company said. About 50 percent of U.S. households use gas for heating, Energy Department data show.

The number of rigs drilling for gas in the U.S. rose by 11 to 428 in the week ended Nov. 23, according to data from Baker Hughes Inc. in Houston. The rig count is down 47 percent this year.

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 monthly 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 eight 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 307,817 as of 2:51 p.m., compared with the three-month average of 359,000. Volume was 360,447 yesterday. Open interest was 1.14 million contracts. The three-month average is 1.15 million.

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

To contact the reporters 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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