Natural gas futures dropped in New York for the first time in nine days, retreating from a six-month high, as forecasts showed that a cold front will ease in mid-December, limiting heating demand.
Gas fell 0.3 percent after government midday models showed that a blast of cold air in the U.S. next week will be followed by more seasonal weather from Dec. 13 through Dec. 17. The futures surged above $4 earlier as forecasts showed colder weather and on speculation that a government report this week will show the biggest November stockpile decline in 13 years.
“Despite relatively constructive short-term fundamentals, the market remains fickle, with the possibility of a warmer trend taking hold mid-December,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “It appears that investors are cautious about adding much length at these levels.”
Natural gas for January delivery fell 1.2 cents to settle at $3.976 per million British thermal units on the New York Mercantile Exchange after rising to $4.017, the highest intraday price since June 5. Trading volume was 1.5 percent below the 100-day average at 2:35 p.m. The futures have climbed 19 percent this year.
The discount for the January contract versus February futures narrowed 0.2 cent to 0.2 cent. March gas traded 3.7 cents above April, compared with 4.5 cents yesterday.
January $4.25 calls were the most active options in electronic trading. They were 0.6 cent lower at 3.6 cents on volume of 789 at 3:01 p.m. Calls accounted for 57 percent of trading volume.
Gas snapped an eight-day rally, the longest since October 2006. Prices surged to a 21-month high of $4.444 on May 1 after an unusually cold end to the heating season eroded a supply surplus.
“We’ve got more to rally,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “A cold December could test that price and then some.”
The spell of mild East Coast weather comes between blasts of cold air, according to CWG in Bethesda, Maryland. The cold will then ease in the middle of the month.
Chicago’s low on Dec. 10 will drop to 8 degrees Fahrenheit (minus 13 Celsius), 16 below normal, from today’s reading of 46 degrees, 9 above normal, according to AccuWeather Inc. in State College, Pennsylvania.
About 49 percent of U.S. households use gas for heating and 39 percent use electricity, data show from the Energy Information Administration, the statistical arm of the Energy Department. The peak heating-demand season extends from November through March.
U.S. gas inventories probably fell by 140 billion cubic feet last week, based on the median of six analyst estimates compiled by Bloomberg. Estimates ranged from declines of 130 billion to 150 billion. The five-year average for the period is a drop of 41 billion cubic feet.
EIA reports show three other triple-digit withdrawals for the month of November, based on data compiled by Bloomberg going back to 1994, including decreases of 148 billion cubic feet in 2000, 101 billion in 1997 and 100 billion in 1996.
Stockpiles totaled 3.776 trillion cubic feet in the seven days ended Nov. 22, 100 billion, or 2.6 percent, below year-earlier levels, EIA data show. Supplies were 17 billion, or 0.5 percent, above the five-year average.
“In the next four weekly storage reports, the market can now project the year-over-year inventory deficit to grow from 100 Bcf to well over 400 Bcf,” said Brison Bickerton, head of strategy at Freepoint Commodities LLC in Stamford, Connecticut. “The market typically reacts bullishly to large expansions of storage deficits.”
Marketed gas production will climb for the sixth straight year to average 70.29 billion cubic feet a day, up 1.6 percent from the 2012 record of 69.18 billion, the EIA said in its Nov. 3 Short-Term Energy Outlook.
Gains are being driven by new wells being connected at the Marcellus shale deposit in the Northeast, which has emerged as the largest U.S. gas producing region. Marcellus output will jump 37 percent to 12.9 billion cubic feet a day from a year earlier, the government said in its Drilling Productivity Report on Nov. 12.
Money managers raised bullish bets on natural gas for the first time in six weeks, according to the Commodity Futures Trading Commission’s Commitments of Traders report yesterday. Net-long positions rose by 42,751 futures equivalents, or 46 percent, to 135,244 in the seven days ended Nov. 26.
Given the cold start to the heating season, “we are seeing pretty significant early draws in storage and that might reset the range in trading,” Viswanath said. Prices that were stuck in a trading range of $3.50 to $3.85 over the past five months may move up to a new range of $3.85 to $4.25 during winter, she said.
“The high for the winter season will likely be set this month on the possibility of more moderate weather in the second half of the season,” she said.
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