Natural Gas Falls Near 12-Week Low on Forecasts of Mild Weather

Natural gas futures declined to the lowest price in almost 12 weeks on forecasts of moderating temperatures that may limit demand for the heating fuel.

Gas slipped for a fourth day in New York as National Weather Service forecasts showed that warmer-than-normal weather is likely in the Midwest, mid-Atlantic and South from Feb. 13 through Feb. 17. The Energy Department today raised its forecast for 2011 gas production by 1.5 percent.

“The market has had spring on its mind for several weeks now,” said Jay Levine, the president of Enerjay LLC, an energy brokerage in Portland, Maine. “In this case, the price is signaling that the market has little or no fear of future supply versus demand.”

Natural gas for March delivery fell 6.4 cents, or 1.6 percent, to $4.04 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Nov. 18. The futures have declined 25 percent from a year ago.

The low temperature in New York on Feb. 15 may be 40 degrees Fahrenheit (4 degrees Celsius), 12 degrees above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago may be 31 degrees, 10 degrees above normal.

“We do have some moderating temperatures later this month,” said Gene McGillian, an analyst with Tradition Energy in Stamford, Connecticut. “Weak fundamentals have kept gas prices below $5 this winter for the first time in nine years.”

U.S. heating demand may be 22 percent below normal levels from Feb. 14 through Feb. 18, according to Weather Derivatives in Belton, Missouri.

About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.

Milder Weather

“The temperature outlook suggests the worst is behind us in terms of cold this heating season, though winter weather to date has sure been supportive,” Canaccord Genuity analysts including Cameron Horwitz in Houston said in a note to clients today.

Energy Department data scheduled for release Feb. 10 may show a larger-than-normal withdrawal from gas inventories for the week ended Feb. 4, analysts predicted. The department may report a reduction in stockpiles of 192 billion cubic feet, according to the median of 11 analyst estimates compiled by Bloomberg.

The five-year average withdrawal for the week is 159 billion, according to department data. A decline of more than 164 billion cubic feet would erase a 0.2 percent surplus to the five-year average.

Higher Production

The U.S. raised its forecast for natural gas production in 2011 and increased its outlook for this year’s gas prices, the department’s monthly Short-Term Energy Outlook showed. Marketed gas production will average 62.32 billion cubic feet a day in 2011, up from 61.38 billion estimated in January, the department said.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $4.16 per million British thermal units, up 3.5 percent from January’s estimate of $4.02, according to the report from the department’s Energy Information Administration.

“Increasing consumption, especially in the electric power sector, contributes to higher prices and more economic incentive for producers to resume drilling,” the EIA said in the report.

Gas futures volume in electronic trading on the Nymex was 403,325 as of 2:40 p.m., compared with the three-month average of 295,000. Volume reached a record 510,442 yesterday, according to Chris Grams, a spokesman for CME Group Inc., which owns the Nymex. Open interest was 883,157 contracts. The three-month average open interest is 796,000.

The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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