Natural Gas Caps Third Weekly Drop on Outlook for Warm Weather

Natural gas futures dropped to an 11-week low in New York, capping a third weekly decline, as forecasts showed warmer-than-normal weather in late December that would reduce heating demand.

Gas slipped 1 percent as Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly higher-than-average temperatures in the Northeast and Great Lakes region from Dec. 24 through Dec. 28. The low in New York on Dec. 27 may be 39 degrees Fahrenheit (4 Celsius), 10 more than the usual reading, according to AccuWeather Inc.

“Unless the weather starts to turn, the market is going to continue to break down,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “Prices are just going to keep drifting lower. We need winter weather.”

Natural gas for January delivery fell 3.3 cents to settle at $3.314 per million British thermal units on the New York Mercantile Exchange, down 6.7 percent this week. The closing price was the lowest since Sept. 27. The futures are up 11 percent this year.

January $3.50 calls were the most active gas options in electronic trading. They were 1.7 cents lower at 2.6 cents on volume of 998 contracts as of 2:55 p.m. Calls accounted for 45 percent of options volume.

The low in Boston on Dec. 27 may be 31 degrees Fahrenheit, 6 above normal, according to AccuWeather. About 50 percent of U.S. households use gas for heating.

This year will probably overtake 1998 to become the warmest year on record in the U.S., the National Oceanic and Atmospheric Administration said in a monthly climate report.

Warmest Year

The first 11 months were the warmest start to any year in the contiguous states since the nation began keeping records in 1895, NOAA’s Climatic Data Center said Dec. 6.

The mild start to the winter “adds clear downside risk to our 2013 Nymex natural gas price forecast of $4.25/mmBtu,” Johan Spetz, an analyst at Goldman Sachs Group Inc. in New York, said in a note to clients today.

A warm winter means more coal-to-gas switching at power plants will be needed to keep inventories from exceeding a “comfortable” 3.85 trillion cubic feet next fall, Spetz said.

The number of rigs drilling for gas in the U.S. slipped by one to 416 this week, according to data from Baker Hughes Inc. in Houston. The rig count is down 49 percent this year.

Gas inventories rose 2 billion cubic feet in the week ended Dec. 7 to 3.806 trillion cubic feet, an Energy Department report showed yesterday. It was the latest seasonal stockpile gain since the week ended Dec. 30, 2005, according to department data compiled by Bloomberg.

Stockpile Surplus

Supplies were 8 percent above the five-year average, compared with 4.6 percent the previous week. The gas inventory surplus to the average has declined from a six-year high of 61 percent in March, department data show.

“Prices look poised to fall, as the weather is simply not generating heating demand in sufficient amounts to impact inventories,” Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today.

The U.S. raised its forecast for natural gas output in 2012 by 0.6 percent in a report Dec. 11.

Marketed gas production will average 69.22 billion cubic feet a day this year, up from 68.84 billion estimated in November, the Energy Department said in its monthly Short-Term Energy Outlook. Output may rise 0.5 percent in 2013 to 69.59 billion a day, department estimates show.

Hub Price

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $2.78 per million British thermal units, compared with the previous estimate of $2.77, according to the report from the department’s Energy Information Administration.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first eight months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

Gas futures volume in electronic trading on the Nymex was 339,751 as of 2:46 p.m., compared with the three-month average of 362,000. Volume was 548,515 yesterday. Open interest was 1.16 million contracts. The three-month average is also 1.16 million.

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