Natural gas futures were little changed in New York after dropping to a five-week low following a government report that showed a larger-than-forecast increase in U.S. stockpiles.
Gas fell as much as 2.4% before turning higher after the Energy Information Administration said supplies rose 88 billion cubic feet to 1.865 trillion in the week ended May 3. Analyst estimates compiled by Bloomberg showed an increase of 86 billion. The five-year average gain for the week is 69 billion.
“You got the initial reaction to it being larger than expected, so it sold off,” said Kyle Cooper, director of research with IAF Advisors in Houston. “But we have a decent- size deficit, and these prices put us on a pace to fill storage to 3.8 trillion by November, which is a number the market is comfortable with.”
Futures rose 0.5 cent to settle at $3.983 per million British thermal units on the New York Mercantile Exchange after dropping to $3.883 earlier, the lowest intraday price since April 4. Trading was 3.7% below the 100-day average at 2:49 p.m.
June $3.75 puts were the most-active options in electronic trading, falling 0.8 cent to 3 cents per million Btu on volume of 1,139 at 2:53 p.m. Puts accounted for 52% of trading volume.
Implied volatility for at-the-money options expiring in June was 31.16% at 2:45 p.m., down from 33.17% yesterday.
Futures have gained 19% this year after the coldest March in 11 years boosted heating demand and eliminated a supply surplus. A deficit to the five-year average narrowed to 5% in the week ended May 3 from 6.2% a week earlier, EIA report showed.
“The number was the largest injection of the season so far, and plus, it was over the historical averages,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “I think some of that speculative length is getting a little concerned.”
Hedge funds and other large speculators increased bullish bets on four natural gas contracts to a record 456,475 futures equivalents in the week ended April 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report on May 3. It was a record in data going back to January 2010.
Growing supplies and mild weather may force money managers to unwind those bets, said Teri Viswanath, director of commodities strategy at BNP Paribas in New York.
“It’s definitely going to be sell-it-in-May, buy-in-June with those investors,” Viswanath said. “I think those investors will reload as we get into summer.”
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
Futures fell to a decade low of $1.902 per million Btu in April 2012 amid record production and mild-than-normal winter weather that reduced fuel demand. Supplies grew to an all-time high of 3.929 trillion cubic feet in November, according to the EIA, the Energy Department’s statistical arm.
Horizontal drilling and hydraulic fracturing, or fracking, have boosted output from shale deposits such as the Marcellus in the Northeast and the Eagle Ford in Texas. Increased oil and gas drilling helped the U.S. meet 84% of its energy needs last year, the highest level since 1991, EIA data show.
Marketed gas production will rise to 69.9 billion cubic feet a day in 2013 from 69.18 billion last year, the EIA said May 7 in its Short-Term Energy Outlook. Consumption will increase to 70.17 billion cubic feet a day from 69.68 billion.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.