Natural gas futures retreated in New York on speculation that a winter storm in the East this week will give way to milder weather that will reduce demand for the heating fuel.
Gas fell less than 1 percent as MDA Weather Services predicted a warm-up will spread above-normal temperatures across most of the lower 48 states from Feb. 17 through Feb. 21. A government report tomorrow will probably show a supply drop for last week that exceeded the five-year average by 43 percent, according to analyst estimates compiled by Bloomberg.
“There will be a push and pull between the 10-day forecast and the perception on storage,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “That will be the battle that will play out over the course of the next month.”
Natural gas for March delivery slipped 0.2 cent to settle at $4.822 per million British thermal units on the New York Mercantile Exchange after rising to $5.028, the highest intraday price of this week. Trading volume was 41 percent above the 100-day average at 2:46 p.m. The futures are up 14 percent this year.
March gas traded 26.9 cents above the April contract, compared with 25.4 cents yesterday.
March $6 calls were the most active options in electronic trading. They were down 1.9 cents at 5.7 cents per million Btu on volume of 4,233 at 3:07 p.m. Calls accounted for 79 percent of trading volume. Implied volatility for March at-the-money options was 61.15 percent at 3 p.m., compared with 32.22 percent a month ago.
A winter storm moving across the eastern U.S. left thousands without electricity in the South and threatened heavy snow in the Northeast. New York and Washington may get 8 inches (20 centimeters) of snow in the next two days while Philadelphia may see 6 to 10 inches, the National Weather Service said. An inch of ice is possible in parts of Georgia and South Carolina. Winter storm alerts stretch from Louisiana to Maine.
Higher temperatures forecast from the East Coast to the Rocky Mountains next week will linger in the East through Feb. 26, said MDA in Gaithersburg, Maryland.
“The reality of the intense cold weather and the latest winter storm scourge has renewed the buying fervor,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “The inventory report tomorrow will also be supportive.”
An Energy Information Administration report tomorrow probably show U.S. inventories dropped 231 billion cubic feet last week, based on the median of 19 analyst estimates compiled by Bloomberg. The five-year average decline is 162 billion.
Stockpiles totaled 1.923 trillion cubic feet in the week ended Jan. 31, 22.4 percent below the five-year average, a record deficit in EIA data going back to 2005. Supplies were down 28.8 percent from a year earlier.
Inventories at the end of March, when the heating season draws to a close, will drop to 1.33 trillion cubic feet, the lowest since 2008, after cold weather contributed to record withdrawals, the government said yesterday in its monthly Short-Term Energy Outlook.
Intense cold this week will drive another stockpile decline of more than 200 billion cubic feet next week, and the end-of-season storage “will flirt” with the 1 trillion level, Kilduff said. “Prices should surge back above $5 as the bulls emerge, emboldened by the weather and the upcoming storage reports.”
Gas production will expand 2.2 percent in 2014 to a record 71.76 billion cubic feet a day from last year’s average, the EIA said in the outlook. Output is heading higher for the seventh straight year as new wells come online at shale deposits such as the Marcellus in the Northeast.
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