Natural Gas Futures Fluctuate After Drop to Decade Low

Natural gas futures in New York dropped below $2 per million British thermal units for the first time in a decade on a growing supply glut caused by mild weather and record production.

Gas is down 33 percent this year, making it the worst performer on the Standard & Poor’s GSCI (SPGSCI) commodity index. U.S. stockpiles last month were at an all-time high for the season after the lower 48 states experienced the warmest March on record. Production has climbed, driven by gains at shale formations from Texas to Pennsylvania.

“The bulls continue to make a stand at every support level but there’s no fundamental reason to be long right now,” said Phil Flynn, senior market analyst at PFGBest Research in Chicago.

Natural gas for May delivery declined 3 cents, or 1.5 percent, to $2.001 per million British thermal units at 1:35 p.m. on the New York Mercantile Exchange after sliding to $1.999, the lowest intraday price since Jan. 29, 2002.

More than 15,000 temperature records were broken in the continental U.S. last month, according to the National Oceanic and Atmospheric Administration. Temperatures averaged 51.1 degrees Fahrenheit (10.6 Celsius), 8.6 degrees above the 20th century average, the warmest March in data going back to 1895.

Temperatures during the heating season from October through March were 3.8 degrees above average, making it the second- warmest for the period on record after 1999-2000, government agency said.

Heating Demand

U.S. heating demand this winter was 18 percent below normal through April 7, according to Weather Derivatives in Belton, Missouri. About 51 percent of U.S. households use gas for heating. Fuel consumption typically slumps after the winter heating season ends and before hot weather drives demand from power plants to run air conditioners.

U.S. stockpiles totaled 2.479 trillion cubic feet in the week ended March 30, a high for that time of the year, according to the Energy Department. A surplus of the fuel to the five-year average widened to 61 percent, the most in six years, from 59 percent the previous week.

Supplies may reach a record 3.851 trillion cubic feet by the end of October, the department said yesterday in its monthly Short-Term Energy Outlook.

U.S. gas output increased by 0.8 percent in January to 83.17 billion cubic feet a day from the previous month, led by gains in the Marcellus shale in Pennsylvania and Ohio, the Energy Department’s Energy Information Administration said in its monthly EIA-914 report on March 29. Production in 2011 was a record 28.6 trillion cubic feet.

Gas Output

Production in the lower 48 states rose every month but one from July through January as drillers shifted operations to more profitable liquid-rich shale deposits. Gas output in the region increased 0.5 percent in January to 72.85 billion cubic feet, department data show.

The number of rigs drilling for gas fell 11 to 647 last week, the lowest level since May 2002, according to Baker Hughes Inc. The oil-rig count gained 11 to 1,329, representing 67 percent of the total, according to the Houston-based oil- services company.

The Energy Department cut its 2012 forecast for spot gas prices at the Henry Hub in Erath, Louisiana, by 66 cents, or 21 percent, to an average of $2.51 per million Btu from last month’s estimate. The spot price at the hub, the delivery point for Nymex futures, averaged $4 last year.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net.

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

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