Natural gas futures drop on outlook for mild weather after cold

Natural gas futures slid in New York on forecasts for milder weather that would reduce demand for the heating fuel after today’s arctic blast.

Gas slipped 0.2% as Commodity Weather Group LLC in Bethesda, Maryland, predicted above-normal temperatures in the eastern two-thirds of the U.S. from Jan. 12 through Jan. 16 after frigid weather this week. The low in Columbus, Ohio, on Jan. 12 may be 35 degrees Fahrenheit (2 Celsius), 12 more than usual, according to AccuWeather Inc. in State College, Pennsylvania.

“The longer-term forecasts are showing above-normal temperatures from Texas to Pennsylvania,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The market is treading water.”

Natural gas for February delivery fell 0.7 cent to settle at $4.299 per million British thermal units on the New York Mercantile Exchange after rising as high as $4.43. Trading volume was 32% above the 100-day average at 2:36 p.m. Prices are up 32% from a year ago.

The premium of February to March futures rose 1 cent to 3.2 cents. March gas traded 11.8 cents above the April contract, compared with 10.6 cents yesterday.

February $4.15 puts were the most active options in electronic trading. They were 0.4 cent lower at 6.3 cents per million Btu on volume of 1,800 at 2:53 p.m. Puts accounted for 41% of trading volume.

CFTC Report

Money managers cut net-long natural gas positions, or wagers on rising prices, by 3% in the seven days ended Dec. 31, U.S. Commodity Futures Trading Commission data showed yesterday. Bullish bets fell from a six-month high.

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.

The low in Boston on Jan. 12 may be 35 degrees Fahrenheit (2 Celsius), 13 above average, AccuWeather data show. The moderating weather forecasts come after polar air snarled transportation and led to a surge in energy demand. Temperatures in Chicago today reached minus 10 Fahrenheit, colder than the South Pole, according to AccuWeather.

About 49% of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.

Gas Stockpiles

A Jan. 9 government report may show that gas inventories dropped 151 billion cubic feet in the week ended Jan. 3, above the five-year average withdrawal of 131 billion for the period, according to the median of six analyst estimates compiled by Bloomberg. Supplies slid 191 billion the same week last year.

Gas stockpiles totaled 2.974 trillion cubic feet in the week ended Dec. 27, 8.9% below the five-year average and 16% less than last year’s supplies for the period, EIA data show.

Natural gas production from the lower-48 states climbed 0.9% to 74.6 billion cubic feet a day in October, the EIA said today in its monthly EIA-914 supply report. Output from the “other states” category, which includes the Marcellus shale formation in the Northeast, advanced 2.5% to 27.29 billion cubic feet a day.

“Although the extremely cold temperatures in the Rockies and the Southwest will likely continue to curtail production in the near term, we expect production growth to accelerate later in the year,” Biliana Pehlivanova, an analyst at Barclays Plc in New York, said in a note to clients today.

The U.S. raised its estimate for 2014 gas production to 71.66 billion cubic feet a day from last month’s forecast of 71.43 billion, the EIA said today in its Short-Term Energy Outlook. Supplies may rise 2.1% from last year’s total.

www.bloomberg.com

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