Natural gas drops most in 2 weeks as supply gain tops forecasts

Natural gas futures fell the most in two weeks in New York after a government report showed that a U.S. stockpile increase exceeded forecasts.

Gas fell as much as 3.8% after the Energy Information Administration said inventories rose 99 billion cubic feet in the week ended May 10 to 1.964 trillion. Analyst estimates compiled by Bloomberg showed a gain of 95 billion.

“This is the third consecutive weekly miss so the injections are coming in higher than expected,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “We may find ourselves back above the $4 watermark by the end of the day. Right now the weather maps appear warm.”

Natural gas for June delivery fell 13.4 cents, or 3.3%, to $3.936 per million British thermal units at 11:29 a.m. on the New York Mercantile Exchange. If the market settles there it would be the biggest one-day decline since May 2. Futures trading volume was 37% above the 100-day average for the time of day. Prices are up 17% this year.

June $4.80 calls were the most-active option in electronic trading. They were unchanged at 0.2 cent per million Btu on volume of 5,028 at 11:19 a.m. June $4.30 calls were the next- most active, falling 2.1 cents to 0.8 cent on volume of 905. Calls accounted for 63% of trading.

Implied volatility for at-the-money options expiring in June was 30.57% at 11:15 a.m., down from 32.58% yesterday. Volatility for July options was 31.17%, compared with 32.31% yesterday.

Contract Spreads

The discount of June to October contracts, a measure of summer supply expectations, widened 1.4 cents to 8.8 cents. The discount of October to January contracts widened 1.5 cents to 32.3 cents.

Natural gas has slumped 11% since touching a 21-month high of $4.444 per million Btu on May 1 after the peak heating-demand season, extended by the coldest April since 1997, drew to a close. Prices had surged into early spring as a supply deficit to the five-year average hovered near a record low.

The stockpile increase last week was larger than the five-year average gain for the week of 83 billion cubic feet, department data show. A deficit to the five-year average narrowed to 4.1% from 5% the previous week. Supplies were 26.1% below year-earlier inventories, compared with 28.3% in last week’s report.

Commodity Weather Group LLC predicted that above-normal temperatures in central and eastern states over the next five days will give way to a cool front from May 21 through May 25. The heat may return to the central U.S. at the end of the month, the Bethesda, Maryland-based forecaster said.

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