Natural gas under pressure

July 7, 2014 06:42 AM

Natural gas (NYMEX:NGN14) futures dropped to a three-month low in New York on speculation that inconsistent U.S. heat may limit demand for the power-plant fuel.

Above-normal East Coast temperatures this week will give way to seasonal norms from July 12 through July 21, said Commodity Weather Group LLC in Bethesda, Maryland. The Midwest will be normal or cooler over the period. Gas supplies, which fell to an 11-year low in March, rose by more than 100 billion cubic feet for eight consecutive weeks, a record in government data going back to 1994.

“Without calls for sustained heat across the major gas consuming regions of the country, we continue to come under pressure,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Gas coming out of the ground is slowly eating away the fear that we won’t have enough gas for next winter heating season.”

Natural gas for August delivery fell 12.3 cents, or 2.8%, to $4.283 per million British thermal units at 9:37 a.m. on the New York Mercantile Exchange after sliding to $4.262, the lowest intraday price since April 2. Volume was 22% above the 100-day average. Prices are up 1.3% this year.

New York City’s high temperature will climb tomorrow to 91 degrees Fahrenheit (33 Celsius), 7 above normal, before dropping a week later to 83, 1 lower than average, according to AccuWeather Inc. in State College, Pennsylvania. Chicago’s reading on July 9 will be 75 degrees, 10 below normal, and will stay near that level for the next week.

Power Generators

Electricity generators account for 31% of gas consumption in the country with demand peaking in the third- quarter, U.S. Energy Information Administration data show.

U.S. inventories totaled 1.929 trillion cubic feet in the week ended June 27, 29% below the five-year average for the period, according to the EIA. That supply deficit narrowed from a record 54.7% in March, when storage levels tumbled to 822 billion, the least since 2003.

Gas futures haves slumped 12% since touching $4.886 per million Btu on June 16, a seven-week high, as stockpiles rebounded.

Money managers cut net-long positions, or wagers on rising prices, on benchmark Nymex gas futures by 15% to 254,831 futures equivalents in the seven days ended July 1, the least since Dec. 3, according to U.S. Commodity Futures Trading Commission data. It was the biggest percentage drop since the week ended Nov. 15.

The wider measure includes an index of the 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.

“We continue to shake out net longs that piled up and that is where the majority of the selling pressure is coming from” said McGillian. “We lopped off enough in the last few weeks. The fact that we have a good six-to-eight weeks of the summer cooling season in front of us should provide support to the market.”

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