Natural Gas Falls First Time in Five Days on Forecasts for Cooler Weather

Natural gas futures fell for the first time in five days as revised forecasts showed cooler weather for the U.S. Midwest and Northeast, reducing demand for gas-powered electricity for air conditioning.

Temperatures next week will “fall to at least normal, if not below” average, according to MDA Federal Inc.’s EarthSat Energy Weather. Forecasts for hotter weather helped send gas up 16 percent in the past four days.

“Some of the hotter forecasts may not come to fruition and the intensity of cooling demand has come off a bit relative to some initial forecasts,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston. “We’ve got a massive move and I would expect to see some breather here.”

Natural gas for July delivery fell 10.8 cents, or 2.2 percent, to settle at $4.808 per million British thermal units on the New York Mercantile Exchange. Gas has risen 29 percent from a year ago.

New York will have a high of 67 degrees Fahrenheit (32 Celsius) tomorrow, 11 degrees below normal, according to AccuWeather.com. Chicago will have a high of 78 degrees.

About 22 percent of electricity is generated using natural gas, according to the Energy Department.

The U.S. raised its forecast for natural gas production in 2010 by 0.8 percent to 61.22 billion cubic feet a day from 60.75 billion estimated in May, according to the Energy Department’s monthly Short-Term Energy Outlook.

Hurricane Impact

Hurricanes and tropical storms in the Gulf Coast may reduce gas production by 166 billion cubic feet from June to November, the department said in the report, equal to about 27 days of production in the region. Last year, production was cut by 18 billion.

“Those who are long this market are betting on hurricanes, and those who are playing the short side are saying that we won’t see a major supply disruption,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “It’s a key debate on a daily basis.”

Colorado State University researchers said on June 2 that there is a 76 percent chance that a major hurricane, with winds of 111 mph (178 kph) or greater, will strike the U.S. this year. The past-century average is 52 percent.

The Gulf is home to about 30 percent of U.S. oil and 12 percent of U.S. natural gas production, according to the Energy Department.

The gas consumption forecast for 2010 was raised to 64.93 billion cubic feet a day from 64.43 billion estimated last month, according to the report.

Gas Consumption

Industrial demand will reach 17.86 billion cubic feet a day this year, up from 17.75 billion estimated a month ago, and demand from power generation will be 19.92 billion, up from 19.51 billion.

“It’s going to be difficult to decisively break out above $5 until we see some further evidence of a slowdown in supply,” Horwitz said. “We need to see a further decline in the gas rig count.”

The halt in deep-water drilling in the wake of the BP Plc oil spill took the number of oil and gas rigs in the Gulf of Mexico to 23 last week, the lowest level since August 1993, from 46 a week earlier, according to Baker Hughes Inc. Natural-gas rigs dropped by 20 to 947, according to Baker Hughes.

The Obama administration’s moratorium on gulf deep-water drilling will reduce gas production by 8 billion cubic feet this year, according to the Energy Department’s monthly report.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 22 cents, or 4.7 percent, to $4.886 per million Btu, the highest price since Feb. 24, according to data compiled by Bloomberg.

Gas futures volume in electronic trading on the Nymex was 321,902 as of 3:47 p.m., compared with a three-month average total of 247,000. Volume was 332,046 yesterday. Open interest was 830,171 contracts, compared with the three-month average of 851,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net

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