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Natural Gas Drops Most Since April on Reduced Demand Outlook

Natural gas futures fell the most in three months, snapping a five-day winning streak, after forecasters cut their estimates for air conditioning demand for the power-plant fuel.

Cooling demand in the U.S. will be 21 percent above normal today, compared with a July 30 forecast for 24 percent above normal, according to David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri. Demand will be 31 percent above average tomorrow, compared with last week’s forecast of 34 percent.

“It’s still going to be warmer than normal, but not as warm as people had anticipated,” said Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston. “It gives you reason to take some profits.”

Natural gas for September delivery fell 22.2 cents, or 4.5 percent, to settle at $4.701 per million British thermal units on the New York Mercantile Exchange. It was the largest decline since April 29. Gas rose to $5.007 in earlier trading, surpassing $5 for the first time since June 21.

Gas prices have dropped 16 percent this year amid speculation that inventories will reach near-record highs by the end of October, as a recovering economy puts little pressure on a stockpile surplus.

“We’re seeing a lower number of cooling degree days in the near-term forecasts, and the tropical activity doesn’t look as worrisome,” said Teri Viswanath, director of commodities research at Credit Suisse Securities USA in Houston.

Weather models predict that a tropical depression that formed over the Atlantic Ocean will not affect the Gulf of Mexico, Viswanath said. About 11 percent of U.S. gas production, or 6 billion cubic feet a day, comes from federal waters in the Gulf, according to the Energy Department.

Manufacturing Growth

Manufacturing in the U.S. expanded in July at a slower pace than in June. The Institute for Supply Management’s factory index dropped to 55.5 in July from 56.2 a month earlier. Readings greater than 50 signal growth.

“The short-term story is kind of a murky area where we’re short of enough data,” said Michael Rose, director of trading at Angus Jackson Inc. Fort Lauderdale, Florida. “The real thing that is going to be the catalyst for higher prices is the jobs number.”

The jobless rate rose to 9.6 percent last month from 9.5 percent in June, according to the median estimate of 57 economists surveyed by Bloomberg News before a Labor Department report Aug. 6. A drop in federal census workers as the population count wound down depressed payrolls by 60,000, the data may also show.

If the jobless rate comes in better than expected it will fuel optimism that consumer demand is returning, bolstering gas consumption, Rose said.

U.S. Stockpiles

The fuel rose 7.5 percent last week after a stockpile surplus to the five-year average dropped to 8.9 percent from 9.9 percent a week earlier.

Supplies climbed 28 billion cubic feet to 2.919 trillion in the week ended July 23, according to an Energy Department report on July 29, less than the median forecast of 32 billion in a Bloomberg survey of 21 analysts. The increase was also smaller than the five-year average of 50 billion.

“It had a banner week last week,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “It was up a whole heck of a lot. To some degree, you’re seeing a resetting back to the median price of last Friday, which is around $4.85. It’s a fickle market.”

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 13.16 cents, or 2.7 percent, to $4.9427 per million Btu on the Intercontinental Exchange.

Gas futures volume in electronic trading on the Nymex was 244,032 as of 3 p.m., compared with a three-month average of 252,000. Volume was 190,621 on July 30. Open interest was 786,798 contracts, compared with the three-month average of 820,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

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