Natural Gas Futures Decline on Ample U.S. Supplies for Winter

Natural gas futures declined for the first time in five days on speculation that supplies will be ample to meet demand for the heating fuel.

U.S. natural gas output will average a record 62.09 billion cubic feet a day this year, Energy Department production data show. The total, which may be revised next month, was up 1 percent from a November estimate, according to the department’s Short-Term Energy Outlook, released today in Washington.

“You’re looking at bigger and bigger storage withdrawals for the next couple of weeks, but supplies are still very solid,” said Jason Schenker, president of Prestige Economics in Austin, Texas. “The supply expectations could be having an effect.”

Natural gas for January delivery fell 9.5 cents, or 2.1 percent, to settle at $4.393 per million British thermal units on the New York Mercantile Exchange. Gas yesterday settled at a four-month high of $4.488 per million Btu. Prices have dropped 21 percent this year.

Gas inventories may total 1.833 trillion cubic feet at the end of the winter heating season on March 31, 171 billion above last year’s level, the Energy Department said today.

The department reported Dec. 2 that 23 billion cubic feet of gas were withdrawn from storage in the week ended Nov 26, below the five-year average reduction of 36 billion. Stockpiles totaled 3.814 trillion cubic feet, 10 percent higher than the five-year average for the week.

Gas Rigs

The number of rigs drilling for gas rose by 8 to 961 last week, according to data published Dec. 3 by Baker Hughes Inc. The total of oil and natural-gas rigs operating in the U.S. jumped to a 23-month high, gaining 26 to 1,713, according to Baker Hughes.

Temperatures may be normal or above-normal across most of the eastern and central U.S. in January, February and March, according to the National Weather Service.

“The underlying fundamentals still paint a bearish picture,” said Cameron Horwitz, an analyst at Canaccord Genuity in Houston. “When you look at the kinds of production growth we’ve seen over the past few months, you have to project very high inventories, even numbers that could surpass physical storage capacity come 2011.”

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose for a second day, gaining 0.45 cent, or 0.1 percent, to $4.4788 per million Btu on the Intercontinental Exchange.

Gas futures volume in electronic trading on the Nymex was 329,664 as of 2:37 p.m., compared with a three-month average of 273,000. Volume was 318,514 yesterday. Open interest was 756,331 contracts, compared with the three-month average of 796,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

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