Natural Gas Declines on Outlook for Brief Eastern U.S. Heat Wave

Natural gas futures slid for second day in New York as forecasts showed the weather will cool following this week’s heat wave in the eastern U.S.

Gas fell 1.1 percent as MDA EarthSat Weather in Gaithersburg, Maryland, said above-normal temperatures in the Northeast, mid-Atlantic and Midwest over the next week will be replaced by normal or below-average temperatures for the rest of June.

“You can’t sustain a rally in this market even with a heat wave,” said John Woods, president of JJ Woods Associates and Nymex floor trader in New York. “We still have ample gas to sustain this market and keep prices below $3.”

Natural gas for July delivery declined 2.8 cents to settle at $2.517 per million British thermal units on the New York Mercantile Exchange. The futures advanced to $2.679 per million Btu in earlier trading, the highest intraday price since May 24. Gas fell to a 10-year intraday low of $1.902 on April 19.

The price discount, or spread, of the July contract to August futures widened 0.9 cent to 3.8 cents.

August $2 puts, bets that prices will fall, were the most active options in electronic trading on the exchange. They rose 0.5 cent to 2.3 cents per million Btu on volume of 484 contracts at 3:57 p.m.

U.S. cooling demand will drop from 25 percent above normal tomorrow to 10 percent below normal from June 26 through June 30, according to Weather Derivatives in Belton, Missouri.

The high temperature in New York City’s Central Park tomorrow may be 97 degrees Fahrenheit (36 Celsius), 16 above normal, before dropping to 6 below normal at 76 degrees on June 26, according to AccuWeather Inc. in State College, Pennsylvania.

Tropical Weather

An area of low pressure extending from western Cuba to southern Florida has a 20 percent chance of becoming a tropical cyclone within the next 48 hours, the National Hurricane Center said in an outlook at 2 p.m. today in Miami. The system is moving toward the southeastern Gulf of Mexico, according to the hurricane center.

The Gulf accounts for about 6.5 percent of U.S. marketed gas production, according to the Energy Department.

Government data scheduled for release at 10:30 a.m. tomorrow in Washington may show an increase in gas inventories of 64 billion cubic feet for the week ended June 15, according to the median of 22 analyst estimates compiled by Bloomberg. The five-year average increase is 87 billion, department data show.

Gas surged 14 percent on June 14, the biggest gain since September 2009, after the Energy Department said stockpiles rose 67 billion cubic feet in the week ended June 8 to 2.944 trillion. Analyst forecasts compiled by Bloomberg showed a gain of 75 billion.

Stockpile Surplus

A surplus to the five-year average fell to 29 percent, the lowest since the week ended Jan. 27, from 31 the previous week. The surplus has declined each week since reaching a six-year high of 61 percent at the end of March as the mildest winter since 2000 reduced heating-fuel demand.

The U.S. cut its forecast for natural gas output in 2012 by 1 percent, the Energy Department said June 12 in its monthly Short-Term Energy Outlook. Marketed gas production will average 68.47 billion cubic feet a day this year, down from 69.14 billion estimated in May, the department said.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $2.55 per million British thermal units, up from the previous estimate of $2.45, according to the report.

The number of rigs drilling for gas in the U.S. fell three to 562 last week, the lowest amount since September 1999, data released June 15 by Baker Hughes Inc. in Houston show.

Gas futures volume in electronic trading on the Nymex was 347,855 as of 3:08 p.m., compared with the three-month average of 380,000. Volume was 396,449 yesterday. Open interest was 1.19 million contracts. The three-month average is 1.23 million.

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

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