Gas glut, blizzard or no blizzard

January 26, 2015 11:19 AM

Natural gas futures fell in New York as forecasts signaled lower demand for the heating fuel after a blizzard pushes through the Northeast.

Below-normal temperatures in the East may give way to higher readings by the middle of February, Commodity Weather Group LLC said. New York and Boston may get as much as 24 inches (60 centimeters) of snow through tomorrow, the National Weather Service said. Gas supplies are 8.7% above levels a year ago, when waves of polar air spurred record demand and sent Northeast prices to all-time highs.

“I’m a little puzzled because we basically have 10 days of cold weather coming up and we just don’t seem to be focusing on that,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “The problem is that December was really mild and then January so far hasn’t had sustained cold.” The storage surplus over last year has “taken some of the fear out of the market.”

Natural gas for February delivery fell 3.8¢, or 1.3%, to $2.948 per million British thermal units at 10:49 a.m. on the New York Mercantile Exchange. Futures have fallen 24% since the November start of the peak heating-demand season.

April $2 puts were the most active options in electronic trading. They were up 0.1 cent at 2.3¢ on volume of 251 contracts at 10:41 a.m.

CME Group Inc., which owns Nymex, plans to observe normal market hours tomorrow, Chris Grams, a spokesman for the company, said in an e-mail. “We will continue to monitor the weather situation.”

Gas Pipeline

Blizzard warnings have been issued from New Jersey to Maine, while winter storm and weather advisories stretch into Ohio. Williams Cos.’ Transco gas pipeline and Kinder Morgan Inc.’s Tennessee Gas system issued operational flow orders in the Northeast effective for Jan. 27 in anticipation of increased demand because of cold weather.

Scana Corp.’s Carolina Gas also issued a flow order on its pipeline system starting Tuesday because projected weather conditions indicate that gas supplies “will be detrimentally inadequate to meet deliveries,” according to a website notice. The company expects the flow order to be in effect for four days.

“Such a winter storm would typically elicit a flurry of natural gas futures buying,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients. “However, steady production and flush storage has quelled any potential buying interest.” The storm may have helped stem a selloff that would have come after a new forecast showed milder weather in the next 11 to 15 days, she said.

 

Milder Outlook

 

Computer models overnight turned milder for the central U.S. from Feb. 5 through Feb. 9, while the East Coast will continue to see below-normal temperatures during the period, Matt Rogers, president of Commodity Weather in Bethesda, Maryland, said in an e-mailed report. The loss of a high pressure Alaska ridge in the models “could mean warmer pattern risks for the middle of February across much of the U.S.,” he said.

About 49% of U.S. households use gas for heating, led by the Midwest and Northeast, Energy Information Administration data show.

Gas inventories probably fell by 113 billion cubic feet last week, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a Jan. 23 e-mail. McGillian said his initial forecast is for a drop of less than 100 billion. Supplies dropped 219 billion the same time last year. The five-year average withdrawal is 168 billion. The EIA is scheduled to report on last week inventory levels on Jan. 29.

Mild winter weather and record production slowed storage declines of the heating and power-plant fuel. EIA reports show supplies have fallen by 934 billion cubic feet since the end of October to 2.637 trillion on Jan. 16. That’s lower than the year-earlier decline of 1.371 trillion for the same period and the five-year average drop of 1.042 trillion.

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