Natural gas falls on easing cold outlook

Natural gas (NYMEX:NGJ14) futures fell for the third day this week as higher temperatures reduce demand for heating fuel.

Gas slid as much as 1.3 percent after Commodity Weather Group LLC predicted another round of below-normal temperatures in the eastern U.S. next week before seasonal weather returns to most of the lower 48 states from March 17 through March 21. Gas inventories ended February at the lowest level since 2004 following a frigid start to the year.

“The bearish case is the anticipated drop in seasonal demand as spring weather comes in,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We had record demand levels at points in January and February, and when you eliminate the market there isn’t an immediate need to drag prices higher. The low level of inventories is providing support for the market,”

Natural gas for April delivery fell 4.6 cents, or 1 percent, to $4.616 per million British thermal units at 12:13 p.m. on the New York Mercantile Exchange. Trading volume was 58 percent below the 100-day average. Prices are up 0.2 percent this week and have gained 9.2 percent this year.

April gas traded 4.5 cents above the May contract, compared with 5.9 cents yesterday. The premium for April futures versus October narrowed to 3.5 cents from 5.1 cents.

Electronic Trading

April $4 puts were the most active options in electronic trading. They were 0.1 cent higher at 1.1 cents per million Btu on volume of 1,290 contracts at 12:15 p.m. Puts accounted for 65 percent of trading volume.

Weather models show a cold snap for March 12 through March 16 from the Northeast to Texas, while projections are milder for the following five days, said CWG, based in Bethesda, Maryland.

The high in Chicago on March 12 will be 32 degrees Fahrenheit (0 Celsius), 13 below normal, before climbing a week later to 61 degrees, 13 higher than usual, according to AccuWeather Inc. in State College, Pennsylvania. About 49 percent of U.S. households use gas for heating, led by the Midwest and then the Northeast, data show from the EIA, the Energy Department’s statistical arm.

Gas inventories fell 152 billion cubic feet in the week ended Feb. 28 to 1.196 trillion, ending the month at the lowest level since 2004, an EIA report yesterday showed. The drop was bigger than the five-year average for the seven days of 105 billion and the year-earlier decline of 149 billion.

Supplies deficits widened to a record 38.8 percent versus the five-year norm and 34.5 percent versus year-earlier inventories.

Waves of arctic air spurred storage withdrawals at a record pace of 2.62 trillion cubic feet since the end of October, toppling the previous high of 2.386 trillion in the winter of 2002-2003, EIA data going back to 1995 show.

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