Natural gas futures decline on bigger-than-forecast supply gain

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% 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% below the 100-day average at 2:40 p.m. Gas is up 16% 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% of trading volume. Implied volatility for at-the-money options expiring in August was 28.74% at 3 p.m., compared with 29.59% 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% from 2.4% the previous week. Supplies were 18.7% below year-earlier inventories, down from 20% 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.

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