Natural gas futures dropped in New York from the highest level in more than two years on forecasts for milder U.S. weather that signaled reduced heading demand.
Gas fell 0.9 percent as Commodity Weather Group LLC predicted warmer-than-normal temperatures along the East Coast over the next five days and mostly seasonal readings from Dec. 25 through Dec. 29. Prices surged 4.9 percent yesterday after the government reported a record drop in U.S. inventories following last week’s arctic blast.
“There was obviously very, very cold weather last week and it’s not that cold now, that’s the bearish case,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “The market is probably going to start reflecting less demand than we experienced a week ago.”
Natural gas for January delivery slid 4.2 cents to settle at $4.418 per million British thermal units on the New York Mercantile Exchange after rising to $4.492, the highest intraday price since July 21, 2011. Volume was 1 percent above the 100-day average at 3:05 p.m.
Gas rose 1.5 percent this week, capping a seventh consecutive gain in the longest such streak since the nine weeks ended April 19. The futures are up 32 percent this year.
The discount for January futures to February widened 2 cents to 4.9 cents, the most for the two contracts based on data going back to 2008. March gas traded 27.8 cents above the April contract, compared with 25.9 cents yesterday.
March $2.70 puts were the most active options in electronic trading. They were unchanged at 0.1 cent per million Btu on volume of 3,800 at 3:08 p.m. Calls accounted for 59 percent of trading volume.
Parts of the Northeast may see record-high temperatures this weekend while an area from the Texas Panhandle northeast to Michigan will have snow and ice over the weekend, according to the National Weather Service.
The high temperature in New York City on Dec. 22 may reach 69 degrees Fahrenheit (21 Celsius), 28 above normal, before dropping to 33 degrees, 6 lower than average, on Jan. 1, said AccuWeather Inc. in State College, Pennsylvania.
Forecast models show that a warm weekend on the East Coast will give way to a “very cold start of January over the lower 48 states,” Matt Rogers, president of Commodity Weather, said in a note to clients today. “Given the high volatility seen this winter, the outlook today is cautiously colder.”
Below-normal temperatures in the upper Midwest next week will sweep over most of the U.S. from Dec. 30 through Jan. 3, according to the Bethesda, Maryland-based forecaster. Chicago’s low on Dec. 23 may be 1 degree, 20 below the norm, according to AccuWeather.
About 49 percent of U.S. households use gas for heating, according to the EIA, the Energy Department’s statistical arm. The heating season from November through March is the peak demand period for the fuel in the lower 48 states.
Gas inventories dropped by 285 billion cubic feet in the week ended Dec. 13 to 3.248 trillion, the biggest decline ever based on EIA records back to 1994. A deficit versus the five-year average widened to 7.4 percent from 3 percent the previous week. Supplies were 13.1 percent below year-earlier levels, compared with 7.2 percent in the prior report.
“Production is recovering from well freeze-offs very slowly,” especially in the Rockies and Texas shale basins, following unusually cold weather this month, Shiyang Wang, a New York-based analyst with Barclays Plc, said in a note to clients today.
Pipeline flows show output dropped by almost 3 billion cubic feet a day in early December and is still 0.8 billion lower than in November, she said.
The number of rigs drilling for gas rose by 3 this week to 372, according to Baker Hughes Inc. data released today. The rig count is down 14 percent this year.
U.S. production in 2013 will expand for the sixth straight year amid a surge of new supply coming from the Marcellus shale deposit in the Northeast, according to the EIA’s Short-Term Energy Outlook on Dec. 10. Output will increase 1.8 percent to average 70.47 billion cubic feet a day, from the 2012 record of 69.18 billion. Supplies will gain 1.4 percent in 2014 to 71.43 billion.
The U.S. met 86 percent of its own energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, government data show.
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