Bloomberg News

Natural Gas Futures Decline on Bigger-Than-Forecast Supply Gain

June 20, 2013

Natural gas futures fell in New York for the first time in four days after U.S. stockpiles rose more than forecast.

Gas dropped 2.2 percent as the Energy Information Administration said inventories expanded by 91 billion cubic feet in the week ended June 14 to 2.438 trillion cubic feet. Analyst estimates compiled by Bloomberg showed an expected gain of 89 billion. Supply increases have exceeded the five-year average for three consecutive weeks as mild weather reduced demand from power plants.

“We are certainly getting outsized injections at this point and that is a function of a lack of demand,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “As we go into the hottest part of the summer, people in New York, Chicago and Boston are finally going to turn on their air conditioners next week. You are going to see injections over the next two months start to pull back.”

Natural gas for July delivery fell 8.6 cents to settle $3.877 per million British thermal units on the New York Mercantile Exchange. Trading was 2.8 percent below the 100-day average at 2:40 p.m. Gas is up 16 percent this year.

The discount of July to October futures widened 0.6 cent from yesterday to 3.1 cents.

Gas Options

July $3.85 puts were the most active options in electronic trading. They were 1.2 cents higher at 2.6 cents per million Btu on volume of 1,391 at 3:08 p.m. Puts accounted for 55 percent of trading volume. Implied volatility for at-the-money options expiring in August was 28.74 percent at 3 p.m., compared with 29.59 percent yesterday.

The stockpile increase was bigger than the five-year average gain for the week of 80 billion cubic feet, department data show. A deficit to the five-year average narrowed to 1.9 percent from 2.4 percent the previous week. Supplies were 18.7 percent below year-earlier inventories, down from 20 percent in last week’s report.

“We are now seeing that build in cooling demand, and that will likely curb the industry’s restocking ability,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.

Gas futures had rebounded since dropping to a three-month low last week on the outlook for hotter weather that would boost demand for the power-plant fuel to run air conditioners.

Hotter Weather

Temperatures across most of the lower 48 states will be above normal from June 25 through July 14, according to MDA Weather Services in Gaithersburg, Maryland. The high in Boston on June 24 may be 90 degrees Fahrenheit (32 Celsius), 11 higher than usual, and Houston may reach 99 degrees on July 2, 8 above normal, said AccuWeather Inc. in State College, Pennsylvania.

Electricity generators, the largest consumers of U.S. gas, will account for 32 percent of demand in 2013, according to the EIA.

U.S. gas output will rise to an all-time high for the sixth straight year as new wells come online at shale formations, such as the Marcellus in the Northeast. Marketed gas production will average a record 70.01 billion cubic feet a day this year, up 1.2 percent from 69.18 billion in 2012, the EIA said June 11 in its monthly Short-Term Energy Outlook.

“After stabilizing in 2013, gas output will rise strongly” from 2014 through 2018 as higher prices spur drilling and expanded infrastructure allows more shale supplies to reach the market, the International Energy Agency said in its Medium-Term Market Report, released today.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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