Natural gas futures dropped from a six-month high as forecasts showed a shift to milder weather after a cold spell.
Gas slipped 0.4% as Commodity Weather Group LLC in Bethesda, Maryland, predicted normal or above-average temperatures in most of the lower-48 states from Dec. 16 through Dec. 20 after below-normal readings this week. Futures earlier climbed to $4.199 per million British thermal units, the highest since May 28, after jumping 4.3% yesterday in the biggest one-day gain since July.
“We’re seeing the possibility that the weather may warm up later in the month,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “The market is probably a little overbought after coming up so fast yesterday.”
Natural gas for January delivery fell 1.8 cents to settle at $4.114 per million British thermal units on the New York Mercantile Exchange. Trading volume was almost double the 100- day average at 2:41 p.m. Prices rose 4% this week, capping a fifth weekly gain, and are up 23% this year.
The relative strength index, or RSI, for the front-month contracts was 74.05 at 2:41 p.m. A number above 70 is considered by some traders to be a sell signal, while a drop below 30 can be an indicator to buy.
The premium of January to February futures narrowed 1.4 cents to 0.4 cent. March gas traded 6 cents above the April contract, compared with 7 cents yesterday.
February $4.40 calls were the most active options in electronic trading. They were 0.3 cent lower at 10.2 cents per million Btu on volume of 1,024 at 3:19 p.m. Calls accounted for 64% of trading volume.
The low in St. Louis on Dec. 18 may be 28 degrees Fahrenheit (minus 2 Celsius), 3 more than usual, according to AccuWeather Inc. in State College, Pennsylvania. The low in Omaha, Nebraska, may be 19 degrees, 3 higher than normal.
About 49% of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.
The U.S. may have 3.4% more heating-degree days, a measure of weather-driven energy demand, from November to March compared with the same period last year, Commodity Weather Group said in a Nov. 25 seasonal outlook.
“Another cold weather blast will be required to sustain the rally,” Mike Fitzpatrick, the editor of the Energy OverView newsletter in New York, said in a note to clients today.
The EIA said yesterday that gas stockpiles tumbled 162 billion cubic feet last week to 3.614 trillion, compared with the five-year average drop of 41 billion for the period.
Inventories were 2.8% below the five-year average and 5.2% less than last year’s supplies for the seven days ended Nov. 29, EIA data show. Last week’s supply change was the biggest November decline in records going back to 1994.
Gross gas production in the lower-48 states slid 0.8% in September to 73.91 billion cubic feet a day from a revised 74.49 billion the previous month, the EIA said today in its monthly EIA-914 report. Output fell as a gas plant shut in Wyoming and producers in Louisiana reported maintenance and “normal well declines,” the agency said.
Total U.S. production advanced 0.3% to 82.16 billion cubic feet a day.
Natural gas production from the Marcellus shale formation in the U.S. Northeast may increase 3.3% in December to 12.9 billion cubic feet a day from an estimated 12.5 billion in November, the EIA said Nov. 12 in its monthly Drilling Productivity Report.
The number of rigs drilling for natural gas in the U.S. climbed by eight to 375 this week, according to data released today by Baker Hughes Inc. in Houston. The total is down 13% this year.