Bloomberg News

Natural Gas Caps Third Weekly Drop on Mild Weather Forecast

June 14, 2013

Natural gas futures dropped in New York, capping a third weekly decline, on forecasts of moderating weather that would limit demand from power plants.

Gas slipped 2.1 percent as mostly normal temperatures are forecast in the eastern half of the U.S. through June 28, according to Commodity Weather Group LLC in Bethesda, Maryland. The high in New York on June 19 may be 80 degrees Fahrenheit (27 Celsius), matching the day’s average, according to AccuWeather Inc. in State College, Pennsylvania.

“We’re not seeing super-hot temperatures, so it doesn’t look like prices are going to get that type of support,” said Phil Flynn, a senior market analyst for Price Futures Group in Chicago. “The weather is going to be the key for this market.”

Natural gas for July delivery fell 8.1 cents to settle at $3.733 per million British thermal units on the New York Mercantile Exchange. Trading volume was 34 percent below the 100-day average at 2:41 p.m. Prices have climbed 11 percent this year and dropped 2.5 percent this week.

The discount of July to October futures widened 0.2 cent to 4.3 cents.

August $4 puts were the most active options in electronic trading. They were 4.7 cents higher at 30 cents per million Btu on volume of 2,667 at 2:56 p.m. Puts accounted for 78 percent of trading volume. Implied volatility for at-the-money options expiring in July was 27.50 percent at 2:45 p.m., compared with 27.32 percent yesterday.

Cleveland Weather

The high in Cleveland on June 19 may be 75 degrees Fahrenheit, 4 below normal, AccuWeather said. Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

A report yesterday from the EIA showed stockpiles rose 95 billion cubic feet in the week ended June 7. Analyst estimates compiled by Bloomberg predicted an increase of 96 billion. The five-year average gain for the week is 84 billion.

Inventories totaled 2.347 trillion cubic feet, 2.4 percent below the five-year average and 20 percent less than last year’s total for the period.

“With the weather expected to be mostly neutral for the next several weeks, there is a good possibility that gap between current inventories and the five-year average could be eliminated before the end of June,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients today.

Gas Rigs

The number of rigs drilling for natural gas in the U.S. fell by one to 353 this week, a report from Baker Hughes Inc. in Houston showed today. The total is down 18 percent this year.

The U.S. raised its forecast for 2013 marketed natural gas production to 70.01 billion cubic feet a day, topping 70 billion for the first time, from last month’s estimate of 69.9 billion, the EIA said June 11 in its monthly Short-Term Energy Outlook. Onshore output is projected to rise as Gulf of Mexico production declines, according to the report. Supplies may climb 1.2 percent from last year.

Demand will average 70.04 billion cubic feet a day this year, compared with last month’s prediction of 70.17 billion, the agency said. Rising prices will reduce gas consumption by electricity generators, the EIA said.

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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