Natural Gas Falls on Outlook for Warmer Weather in January

Natural gas futures declined in New York for the third time in four days as forecasts for a warmer start to January signaled reduced demand for heating fuels.

Gas fell 3 percent, the biggest one-day drop since Dec. 7, as MDA Weather Services in Gaithersburg, Maryland, predicted above-normal temperatures for the middle third of the U.S. from Jan. 3 through Jan. 7. Floor trading closed an hour early and will be shut tomorrow for Christmas.

“It looks like the 11- to 15-day forecast is warming up here a little bit,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “You’ve got to be cautious. It’s the weather and because of the abundance of the supply.”

Natural gas for January delivery fell 10.5 cents to settle at $3.346 per million British thermal units on the New York Mercantile Exchange. Gas is up 12 percent this year, heading for the first annual gain since 2007. Futures volume was 47 percent below the average of the past 100 days at 1:41 p.m.

February $2.85 puts were the most active options in electronic trading on the Nymex. They rose 0.3 cent to 1.3 cents on volume of 1,224 lots as of 1:41 p.m.

Gas futures extended losses after Frontier Weather Inc. said a midday update from a government weather model was somewhat warmer across the middle of the country for the next six to 15 days.

Weather Outlook

The low temperature in Detroit on Jan. 4 may be 24 degrees Fahrenheit (minus 4 Celsius), 3 above normal, and Kansas City, Missouri, may be 6 above normal at 29 degrees, said AccuWeather Inc. in State College, Pennsylvania.

About 50 percent of U.S. households use gas for heating, according to the Energy Department.

Moderating temperatures at the beginning of January may result in below-average stockpile declines, Saal said.

Gas inventories fell 82 billion cubic feet to 3.724 trillion during the week ended Dec. 14, below the five-year average drop of 144 billion, department data show. Supplies were 10.2 percent above the historical average for the seven-day period, up from 8 percent the previous week.

The next weekly gas storage report, scheduled for release Dec. 28, “is going to be soft again,” given temperatures, which may push gas prices toward $3 per million Btu, Drew Wozniak, vice president of market research at United-ICAP, a brokerage in Jersey City, New Jersey, said in a note to clients today. He expects the spread between the two front-month contracts to widen again.

Futures Spread

The discount of January gas futures to the February contract widened by 0.1 cent to 3.2 cents, the first increase in three days.

Money managers decreased net-long positions, or wagers on four U.S. natural gas contracts, to the lowest level since May, according to the Commodity Futures Trading Commission’s Dec. 21 Commitments of Traders report. Net-long wagers shrank by 19,492 futures equivalents, or 21 percent, to 72,627 in the week ended Dec. 18, CFTC data show.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

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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