Natural Gas Heads for Biggest Weekly Drop Since 1996 on Supplies

Natural gas futures fell to a five-week low in New York, heading for the biggest weekly drop in 17 years, after a government report showed a U.S. stockpile decline that was less than forecasts.

Gas has tumbled 26 percent this week, heading for the biggest one-week slump since 1996. The Energy Information Administration said inventories fell 95 billion cubic feet in the week ended Feb. 21 to 1.348 trillion. A survey of Bloomberg users predicted a decrease of 98 billion. Commodity Weather Group LLC expects normal or warmer-than-average weather for parts of the Great Plains and West March 9 through March 13.

“We have some warm weather coming and that’s what the market needs to move lower,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “The storage number was pretty close to expectations and the selloff had actually occurred earlier this week.”

Natural gas for April delivery fell 3.9 cents, or 0.9 percent, to $4.502 million British thermal units at 12:01 p.m. on the New York Mercantile Exchange after dropping to $4.441, the lowest price since Jan. 22. Volume for all futures traded was 2.4 percent below the 100-day average. Prices are down 26 percent this week, heading for the biggest one-week drop since December 1996.

April gas traded 3.7 cents above the May contract, compared with 7.7 cents yesterday.

Gas Options

April $2.90 puts were the most active options in electronic trading. They were 0.2 cent higher at 0.3 cent per million Btu on volume of 8,615 contracts at 12:03 p.m. Puts accounted for 87 percent of trading volume.

The stockpile decrease was smaller than the five-year average decline for the week of 125 billion cubic feet, department data show. Analyst estimates compiled by Bloomberg showed a withdrawal of 102 billion. A deficit to the five-year average widened to a record 34.5 percent from 33.9 percent the previous week. Supplies were 40.2 percent below year-earlier inventories, compared with 40.3 percent in last week’s report.

“This marks only the third week since December in which a draw clocked in smaller than the five-year average,” Mike Tran, an analyst at CIBC World Markets Inc. in New York, said in a note to clients. “The temporary reprieve and widespread warmth last week resulted in U.S. demand falling.” 

March Supplies

Stockpiles at the end of March, when the heating season draws to a close, will drop to 1.33 trillion cubic feet, the lowest level since 2008, the EIA said Feb. 11 in its monthly Short-Term Energy Outlook.

The low in Des Moines, Iowa, on March 10 may be 29 degrees Fahrenheit (minus 2 Celsius), 1 above normal, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Omaha, Nebraska, may fall to 32 degrees, 6 above normal.

About 49 percent of U.S. households use gas for heating, according to the EIA, the Energy Department’s statistical arm.

Marketed gas output in 2014 may climb 2.2 percent to a record 71.76 billion cubic feet a day, gaining for a ninth consecutive year, according to the EIA.

Japan’s Osaka Gas Co. (9532) and Chubu Electric Power Co. will invest $600 million each for half of the equity of the first unit of Freeport LNG Development LP’s planned liquefied natural gas export plant in Texas, the utilities said in a statement today. The terminal is scheduled to begin operating in 2018.

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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