Natural Gas Falls on Outlook for Milder Weather

Natural gas fell in New York on speculation that a break from unusually cold U.S. weather may limit heating fuel demand amid lower trading volume.

Gas dropped 1.1 percent as Commodity Weather Group LLC predicted seasonal readings along the East Coast over the next five days following last week’s cold. Trading volume was 47 percent below the 100-day average at 1:47 p.m. in New York before tomorrow’s Christmas holiday.

“The immediate weather is not supportive,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “Today will be lightly traded because of the holiday. I wouldn’t expect any kind of big moves.”

Natural gas for January delivery slid 4.7 cents to settle at $4.416 per million British thermal units on the New York Mercantile Exchange. Prices yesterday rose to $4.463, the highest close since July 20, 2011. Gas is up 32 percent this year, heading for the biggest annual gain since 2005.

Floor and electronic trading ended at 1:30 p.m. New York time. Electronic trading will resume at 6 p.m. tomorrow and floor trading will open at the usual time Dec. 26.

The discount for January futures to February narrowed 0.3 cent to 5.3 cents. March gas traded 27 cents above the April contract, compared with 30.8 cents yesterday.

Options Trading

April $4.25 calls were the most active options in electronic trading. They were 1.7 cents lower at 22.3 cents per million Btu on volume of 1,000 at 1:49 p.m. Calls accounted for 72 percent of trading volume.

Strong cold air from the upper Midwest will sweep into the eastern half of the U.S. from Dec. 29 through Jan. 2, said Commodity Weather in Bethesda, Maryland.

New York’s high on Dec. 26 will be 41 degrees Fahrenheit (5 Celsius), 1 above normal, before dropping to 25, 14 lower than average, on Dec. 31, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago will be 8 degrees on Dec. 30, 24 below normal.

About 49 percent of U.S. households use gas for heating, said the Energy Information Administration, the Energy Department’s statistical arm. The heating season from November through March is the peak demand period for the fuel in the lower 48 states.

Gas Inventories

Gas inventories probably fell by 177 billion cubic feet last week, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients yesterday. The five-year average for the period is decline of 125 billion. The EIA is schedule to release the report on Dec. 27, a day later than usual because of the mid-week holiday.

Withdrawal of the fuel from storage has exceeded the five-year averages in four of the previous five weeks, EIA data show. U.S. stockpiles slid by 285 billion in the week ended Dec. 13 to 3.248 trillion, a record based on government data going back to 1994.

A supply deficit versus the five-year average will widen to 477 billion by Jan. 10 from 261 billion in the week ended Dec. 13, Evans said.

“This growing deficit represents ongoing upward pressure on prices that we think could make a run for the $5 level in the weeks ahead,” he said.

Gas production will expand for the sixth consecutive year in 2013, rising 1.8 percent from last year to average a record 70.74 billion cubic feet a day, the EIA said in its Dec. 10 Short-Term Energy Outlook. Output at the Marcellus shale will surge 41 percent to 13.3 billion cubic feet a day in December from a year earlier, government data show.

The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, according to government data.

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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