Natural gas drops near 11-week low after unexpected supply gain

Natural gas futures fell to the lowest price in almost 11 weeks after a government report showed that U.S. stockpiles increased unexpectedly as mild weather cut demand for heating fuels.

Gas slid 1 percent after the Energy Department said inventories rose 2 billion cubic feet in the week ended Dec. 7 to 3.806 trillion cubic feet. Analyst estimates compiled by Bloomberg showed an expected drop of 3 billion. It was the latest seasonal supply gain since the week ended Dec. 30, 2005, according to department data compiled by Bloomberg.

“The storage injection was reflective of the very, very warm temperatures,” said Kyle Cooper, director of research with IAF Advisors in Houston. “If Mother Nature continues to deal bearish blows, the market is going to head lower.”

Natural gas for January delivery decreased 3.5 cents to $3.347 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Sept. 28. The futures have risen 12 percent this year, heading for the first annual gain since 2007.

January $3.70 calls were the most active gas options in electronic trading. They were 0.5 cent lower at 1.2 cents on volume of 2,629 contracts as of 3:15 p.m. Calls accounted for 49 percent of options volume.

The stockpile increase compares with the five-year average decline for the week of 113 billion cubic feet, department data show. Supplies were 8 percent above the five-year average, wider than 4.6 percent the previous week. Inventories were 1.3 percent higher than year-earlier levels after being 0.9 percent lower in last week’s report.

Stockpile Surplus

Today’s data release “has minor bearish implications for the reports to follow and we see another two reports with below- average withdrawals before colder temperatures in late December begin guiding prices back to the upside,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients.

Temperatures may be normal or above normal in the eastern U.S. next week, according to MDA Weather Services.

The low in New York on Dec. 18 may be 36 degrees Fahrenheit (2 Celsius), 5 more than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago may be 29 degrees, 7 above normal. About 50 percent of U.S. households use gas for heating.

This year will probably overtake 1998 to become the warmest year on record in the U.S., the National Oceanic and Atmospheric Administration said in a monthly climate report.

The first 11 months were the warmest start to any year in the contiguous states since the nation began keeping records in 1895, NOAA’s Climatic Data Center said Dec. 6.

The U.S. raised its forecast for natural gas output in 2012 by 0.6 percent in a Dec. 11 report.

Gas Production

Marketed gas production will average a record 69.22 billion cubic feet a day this year, up from 68.84 billion estimated in November, the department said in its monthly Short-Term Energy Outlook. Output may rise 0.5 percent in 2013 to 69.59 billion a day, department estimates show.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $2.78 per million British thermal units, compared with the previous estimate of $2.77, according to the report from the department’s Energy Information Administration.

The boom in oil and natural gas production from shale formations 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 440,721 as of 2:44 p.m., compared with the three-month average of 360,000. Volume was 467,610 yesterday. Open interest was 1.15 million contracts. The three-month average is 1.16 million.

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

Bloomberg News

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