Natural Gas Drops Most in 5 Weeks on Forecasts of Warmer Weather

Natural gas futures in New York tumbled the most in five weeks on forecasts of moderating temperatures that may reduce demand for the power-plant fuel.

Gas fell as much as 9 percent, the biggest intraday drop in more than three years, after Commodity Weather Group LLC said cold weather in most of the U.S. this week would give way to above-normal temperatures from Jan. 7 through Jan. 11. The low in New York on Jan. 10 may be 37 degrees Fahrenheit (3 Celsius), 10 higher than usual, AccuWeather Inc. said.

“We’re going to see some warm weather across the primary gas-consuming regions,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “As we get into the new year without signs of sustained cold weather, the fundamental picture is going to force us lower.”

Natural gas for February delivery fell 11.8 cents, or 3.5 percent, to settle at $3.233 per million British thermal units on the New York Mercantile Exchange. On a settlement basis, the drop was the biggest since Nov. 26. The intraday percentage decline was the most since Sept. 11, 2009. The futures have risen 8.2 percent from a year ago.

Trading volume was 297,874 contracts at 3:19 p.m., 3.8 percent below the 100-day average.

February $3.10 puts were the most active gas options in electronic trading. They were 3 cents higher at 6.6 cents on volume of 1,270 contracts as of 3:16 p.m. Puts accounted for 53 percent of options volume.

Gas slid to $3.05 in electronic trading, the lowest price since Sept. 26, before rebounding. A 900-contract sell order at 7:52 p.m. yesterday caused the “scary” drop, Drew Wozniak, vice president of market research and analysis at ICAP Energy LLC in Louisville, Kentucky, said in a note to clients today.

Overnight Trade

“There were no errors and all trades stand,” Damon Leavell, a spokesman for Nymex owner CME Group Inc. in New York, said in an e-mail.

Futures have plummeted 18 percent since rising to a one- year intraday high of $3.933 on Nov. 23 on below-average weekly stockpile declines caused by mild weather.

“That drop in overnight trading spooked the market,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The warm-up in the forecasts wasn’t that significant.”

The year 2012 will probably overtake 1998 to become the warmest on record in the U.S., according to the National Oceanic and Atmospheric Administration. 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.

Stockpile Record

U.S. gas inventories totaled 3.652 trillion cubic feet in the week ended Dec. 21, a record for this time of the year, a department report last week showed. Supplies were 12.8 percent above the five-year average, up from 4.6 percent at the end of November. The surplus had climbed to 61 percent at the end of March. Stockpiles reached an all-time high of 3.929 trillion cubic feet during the week ended Nov. 2.

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

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

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 nine 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.

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.