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Natural Gas Declines on Larger-Than-Expected Storage Increase

Natural gas for May delivery declined on the contract’s last day of trading after a government report showed that U.S. stockpiles climbed more than expected last week.

The futures fell 1.6 percent as inventories rose 47 billion cubic feet in the week ended April 20 to 2.548 trillion cubic feet, the Energy Department said today. Analyst estimates compiled by Bloomberg showed a gain of 45 billion and a survey of Bloomberg users predicted an increase of 42 billion. The department revised the previous week’s stockpile number, reducing the total by 11 billion cubic feet.

“The storage number was a tad bearish relative to what people were expecting,” said Jonathan Arfa, an analyst at Gelber & Associates in Houston. “With the data revision, traders were trying to figure out what the number actually meant.”

Natural gas for May delivery fell 3.2 cents to settle at $2.036 per million British thermal units on the New York Mercantile Exchange. The futures earlier rose as much as 5.8 percent. Gas, the worst performer on the Standard & Poor’s GSCI index of 24 raw materials, is down 32 percent this year.

The more actively-traded June contract, which becomes the front month tomorrow, dropped 4.4 cents, or 2 percent, to settle at $2.126 per million Btu.

June $1.90 puts, bets that prices will fall, were the most active options in electronic trading on the exchange. They rose 1.2 cents to 4 cents per million Btu on volume of 1,021 contracts at 2:35 p.m.

The price discount, or spread, of the May contract to June futures narrowed 1.2 cents to 9 cents.

Five-Year Average

The stockpile increase matched the five-year average gain for the week, department data show. A surplus to the five-year average fell to 55 percent from 58 percent, dropping for a third straight week, the longest series of declines since the period ended Aug. 5.

Supplies were 52 percent above year-earlier levels, compared with 53 percent the previous week. Marketed gas production reached a record 66.22 billion in 2011 and may rise another 4.5 percent this year, according to Energy Department estimates.

The weather may be warmer-than-normal across most of the continental U.S. from May 1 through May 5, according to Commodity Weather Group LLC in Bethesda, Maryland. About 51 percent of households use gas for heating, according to the Energy Department.

Mild Weather

The low in New York on May 3 may be 61 degrees Fahrenheit (16 Celsius), 11 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago may be 55 degrees, 7 above normal.

Heating demand in the U.S. may be 72 percent below normal from May 2 through May 6, data from Weather Derivatives in Belton, Missouri, show.

Exxon Mobil Corp., the largest U.S. gas producer, is shifting rigs from so-called dry gas areas to formations rich in higher-priced liquids, David Rosenthal, the Irving, Texas-based company’s vice president of investor relations, said during an earnings call today.

Encana Corp., Canada’s biggest natural-gas producer by volume, said gas production in the first quarter fell 5 percent from the previous quarter to about 3.27 billion cubic feet a day. Encana said it is targeting gross capacity cuts of about 600 million cubic feet a day, before royalties, from 2011 levels through lower spending, physical shut-ins and other curtailments.

Gas Rigs

The number of rigs drilling for gas has tumbled 22 percent this year, data from Baker Hughes Inc. in Houston show.

Gas prices may rebound to $4 “relatively quickly,” Goldman Sachs Group Inc. said in an April 24 report.

“Slower production growth combined with a return to more normal winter weather next year will reduce the amount of price-induced coal-to-gas substitution required,” Jeffrey Currie, a New York-based analyst at Goldman, said in the report.

American Electric Power Co., the biggest U.S. producer of coal-fueled electricity, said April 20 that it used 62 percent more gas in the first quarter than a year earlier because of low prices.

Gas futures volume in electronic trading on the Nymex was 478,151 as of 2:51 p.m., compared with the three-month average of 377,000. Volume was 393,977 yesterday. Open interest was 1.27 million contracts. The three-month average is 1.24 million.

The exchange has a one-business-day delay in reporting open interest and full volume data.

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