Natural Gas Futures Decline With Milder Weather Forecast

Natural gas fell to a six-week low in New York on speculation that demand will lessen as winter nears an end.

Gas slid 2.5 percent. Commodity Weather Group LLC said the intense cold gripping the Midwest, South and East this week will ease in mid-March, while above-normal temperatures spread across the Great Plains and West. Gas has tumbled 31 percent from a five-year high on Feb. 24.

“This is a pretty good sign the run-up has run its course,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “Demand is going to remain strong, but we are at the end of the season and prices aren’t reacting the way they would have a month ago. At these prices, production is going to be very strong.”

Natural gas for April delivery fell 11.7 cents to $4.492 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Jan. 21. Volume for all futures traded was 27 percent below the 100-day average at 2:55 p.m.. Prices are up 6.2 percent this year.

The futures tumbled 25 percent last week, capping the biggest one-week drop since 1996 and the first monthly decline since September. Prices reached $6.493 on Feb. 24, the highest intraday price since Dec. 2, 2008.

April gas traded 3.7 cents above the May contract, compared with 5.9 cents on Feb. 28.

Gas Options

April $4 puts were the most active options in electronic trading. They were 0.4 cent higher at 1.7 cents per million Btu on volume of 1,335 contracts at 2:59 p.m. Puts accounted for 39 percent of trading volume.

“Cold temperatures in March are not nearly as severe as cold weather in the heart of the winter in January and February,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients today.

Temperatures plummeted across the U.S. as a storm was forecast to bring as much as 8 inches (20 centimeters) of snow to Washington, according to the National Weather Service. Winter storm warnings and advisories stretched from Kansas to southern New Jersey. New York and Boston were spared heavy snow.

Forecasts for the next 15 days turned colder for the eastern region of the contiguous states, Matt Rogers, president of Commodity Weather in Bethesda, Maryland, said in a note to clients today. “Keep in mind that climatology warms faster through the month of March,” he said.

Chicago Weather

The low in Chicago on March 14 will be 34 degrees Fahrenheit (1 Celsius), 4 above normal, after dropping today to 1 degree, 26 lower than average, said AccuWeather Inc. in State College, Pennsylvania. About 49 percent of U.S. households use gas for heating, with the biggest share in the Midwest, according to the Energy Information Administration, the Energy Department’s statistical arm.

Gas inventories fell to 1.348 trillion cubic feet in the week ended Feb. 21, the least for the time of year since 2004, EIA data show. Storage levels were at a record deficit versus the five-year norm of 34.5 percent.

Marketed gas output will expand by 2.2 percent in 2014 to an all-time high of 71.76 billion cubic feet a day as new wells come online at the Marcellus shale deposit in the Northeast, the EIA estimated in a Feb. 11 report.

“Using history as a guide, the last few years have proved lucrative for speculators who have placed bearish bets on the shale production surge,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “So it is probably not too surprising that these same market participants should be reticent to take a contrarian stance against this now-familiar trend.”

The U.S. met 86 percent of its own energy needs in the first 11 months of 2013, the highest since 1986, EIA data show.

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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