Gas Futures Drop on Forecasts for Cooler U.S. Weather

Natural gas futures declined in New York for the first time in four days, capping a second quarterly drop, as meteorologists predicted cooler weather that would limit demand for the power-plant fuel.

Gas slipped 0.8 percent. Commodity Weather Group LLC in Bethesda, Maryland, said temperatures may be mostly normal in the central U.S. from Oct. 5 through Oct. 9 after warmer-than-usual readings this week. Inventories of the fuel totaled 3.386 trillion cubic feet in the week ended Sept. 20, 0.9 percent above the five-year average, government data show.

“This is normally the weakest demand period of the year because temperatures are in a perfect nirvana of not too hot and not too cold,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “We’re under a little bit of pressure with ample supplies.”

Natural gas for November delivery fell 2.9 cents to settle at $3.56 per million British thermal units on the New York Mercantile Exchange. Trading volume was 23 percent below the 100-day average at 2:42 p.m. Prices slid 0.1 percent in the third quarter and 0.6 percent in September.

The discount of November to December futures narrowed 1.1 cents to 16.9 cents. November gas traded 27.1 cents below the January contract, compared with 28.3 cents on Sept. 30.

Gas Options

November $3.25 puts were the most active options in electronic trading. They were 0.3 cent higher at 2.2 cents per million Btu on volume of 960 at 3:11 p.m. Puts accounted for 50 percent of trading volume. Implied volatility for November at-the-money options was 29.96 percent at 3 p.m., compared with 29.27 percent on Sept. 27.

Hedge funds’ net-long wagers on four U.S. natural gas contracts fell for the first time in six weeks, dropping by 6,837, or 2.4 percent, to 276,444 futures equivalents, according to Commodity Futures Trading Commission data released Sept. 27.

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.

The high in Indianapolis on Oct. 6 may be 69 degrees Fahrenheit (21 Celsius), matching the average for that day, and the low may be 50 degrees, according to AccuWeather Inc. in State College, Pennsylvania. The high in Columbus, Ohio, on Oct. 7 may reach 68 degrees, also the normal reading.

About 50 percent of U.S. households use gas for heating, Energy Information Administration data show. The agency is the Energy Department’s statistical arm.

Supply Report

Gross gas production in the lower 48 states rose 0.7 percent in July to a record 74.52 billion cubic feet a day from a revised 74 billion in June, the EIA said today in its monthly EIA-914 report. Output in the “Other States” category, which includes the Marcellus and Utica shale formations, gained 0.9 percent to 26.37 billion a day as new wells came online.

The U.S. met 87 percent of its own energy needs in the first six months of 2013, on pace to be the highest annual rate since 1986, EIA data show.

Gas output will increase next year, driven by production from the Marcellus and Utica deposits, Vikas Dwivedi, a global energy strategist at Macquarie Group in Houston, said in a note to clients today. Industrial demand has declined in recent weeks compared with a year earlier, Dwivedi said.

“As a result, 2014, in our view, continues to show signs of fundamental weakness,” he said in the report.

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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