Natural Gas Falls to Five-Week Low on Below-Forecast Supply Drop

Natural gas futures in New York tumbled to a five-week low after a government report showed that U.S. stockpiles fell by less than forecast last week.

Gas dropped 4.3 percent, the most since Jan. 28, after the Energy Information Administration said inventories slid 157 billion cubic feet in the week ended Feb. 8 to 2.527 trillion cubic feet. Analyst estimates compiled by Bloomberg showed an expected withdrawal of 166 billion. The heating fuel declined the most of any commodity in the Standard & Poor’s GSCI index.

“The data was obviously a bearish surprise,” said Brad Florer, a trader at Kottke Associates LLC in Louisville, Kentucky. “Reports like this keep storage at levels that are likely to keep downward pressure on the market.”

Natural gas for March delivery fell 14.3 cents to settle at $3.163 per million British thermal units on the New York Mercantile Exchange. The closing price was the lowest since Jan. 9. Trading volume was 62 percent above the 100-day average at 2:40 p.m.

March $3 puts were the most active gas options in electronic trading. They rose 0.9 cent to 1.3 cents per million Btu on volume of 1,752 contracts as of 3:08 p.m. Puts accounted for 55 percent of options volume.

The stockpile decrease was bigger than the five-year average decline for the week of 154 billion cubic feet, department data show. A surplus to the five-year average widened to 16 percent from 15 percent the previous week, according to the EIA report.

Supplies were 9.7 percent below year-earlier inventories, compared with 7.8 percent last week.

Temperature Outlook

WSI Corp. in Andover, Massachusetts, predicted mostly normal weather in the eastern half of the U.S. from Feb. 24 through Feb. 28.

The low in Cleveland on Feb. 26 may be 29 degrees Fahrenheit (minus 2 Celsius), 1 higher than average, according to AccuWeather Inc. in State College, Pennsylvania. The low in Memphis, Tennessee, on Feb. 26 may be 44 degrees, 5 above normal.

About 50 percent of U.S. households use gas for heating, data from the EIA show. The agency is the statistical arm of the Energy Department.

Last year was the warmest in records going back to 1895 for the 48 contiguous U.S. states and the second-worst for weather extremes including drought, hurricanes and wildfires, according to the National Oceanic and Atmospheric Administration.

Winter Weather

“Some early cold in November notwithstanding, winter weather just hasn’t played out in the bulls’ favor,” Katherine Spector, a commodities strategist at CIBC World Markets in New York, said in a note to clients dated yesterday. “It’s late in the game for a truly bullish end-season storage scenario to materialize.”

Marketed gas production will average a record 70.02 billion cubic feet a day this year, up 1.1 percent from 2012, the Energy Information Administration said in its monthly Short-Term Energy Outlook, released yesterday in Washington.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.53 per million Btu in 2013, up from $2.75 per million Btu last year, the EIA said.

“Production in the Marcellus Shale areas of Pennsylvania and West Virginia is expected to continue rising as recently drilled wells become operational,” the EIA said in the report.

March Stockpiles

Gas stockpiles may total 2.0 trillion cubic feet at the end of March, down from 2.477 trillion at the same time last year, according to the report.

Output rose to an all-time high of 28.5 trillion cubic feet in 2011, led by record output from shale deposits, the EIA said in a separate report Jan. 7. Shale accounted for 30 percent of total production in 2011, up from 22 percent the previous year.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84 percent of its energy needs in the first 10 months of last year, government data show. If the trend lasted through 2012, it will be the highest level of self-sufficiency since 1991.

To contact the reporters 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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