Natural gas futures dropped from a three-week high in New York as weather forecasts showed a blast of cold weather will moderate late next week.
Gas fell 1.2 percent after government midday models showed temperatures will average a bit below normal in most of the Midwest and the Northeast six to 10 days from now while the South will see seasonal readings, said Frontier Weather Inc. Gas prices had rallied as much as 9.6 percent from a three-month low on Nov. 5 on the outlook for colder weather.
“We will moderate to more normal weather back in the East and that should keep a lid on heating demand,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “It’s an excuse to take a little bit of the wind out of the rally because it’s the early onset of winter and we are still uncertain about how well supplied the market is.”
Natural gas for December delivery slid 4.3 cents to settle at $3.617 per million British thermal units on the New York Mercantile Exchange after climbing to $3.705, the highest intraday price since Oct. 25. Trading volume was 11 percent below the 100-day average at 3:46 p.m. Gas futures have advanced 7.9 percent this year.
The discount of December to January futures widened 0.2 cent to 5 cents. March gas traded 1.3 cents above the April contract versus 1.8 cents on Nov. 15.
February $2.80 puts were the most active options in electronic trading, holding steady at 0.6 cent per million Btu on volume of 3,317 at 3:59 p.m. Call contracts at $5.15 for the same month slid 0.2 cent to 0.4 cent on volume of 3,317. Puts accounted for 56 percent of trading volume.
“At this point of the heating season, it’s going to be, ‘show me first,’ and when that happens you are going to see this market rally again,” said John Woods, president of JJ Woods Associates and Nymex floor trader.
Cold weather may fluctuate along the East Coast this week before gripping the region by the weekend, Matt Rogers, president of CWG in Bethesda, Maryland, said in an e-mail interview. There will be a “pretty impressive cold push for late November,” he said. “Based on our current estimates, November 2013 should be the coldest since 2002.”
A blast of cold air sent readings in cities from Boston to Chicago and Dallas to the lowest levels since March, according to AccuWeather Inc. in State College, Pennsylvania.
The low in New York on Nov. 25 will drop to 28 degrees Fahrenheit (minus 4 Celsius), 11 below normal, following a seasonal reading of 41 degrees today, AccuWeather’s website showed. Chicago’s low a week from today will be 12 lower than average at 18 degrees and Dallas will be 4 below normal at 40 degrees.
November marks the start of the U.S. heating season, when natural gas demand peaks. About 49 percent of all homes use the fuel for heating and 39 percent use electricity, according to the Energy Information Administration, the Energy Department’s statistical arm.
Gas traded higher for most of today amid “anticipation that this week could be the first draw of the season,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.
U.S. stockpiles probably declined by 25 billion to 35 billion cubic feet last week, LCI Energy Insight, an energy analysis and consulting company in El Paso, Texas, said in a report today. The five-year average for the period is a decline of 2 billion cubic feet, while supplies fell by 36 billion the same time last year, EIA data show.
Gas inventories totaled 3.834 trillion cubic feet in the week ended Nov. 8, the EIA said last week. A supply surplus to the five-year average held steady at 1.5 percent while a deficit versus year-earlier levels narrowed to 2 percent from 2.9 percent.