Natural Gas Futures Decline on Outlook for Inventories

Natural gas futures dropped in New York for the second time in three days on speculation that government data will show a bigger-than-normal stockpile increase for last week.

Gas slid 2.4 percent. An Energy Department report scheduled for release at 10:30 a.m. tomorrow in Washington may say inventories expanded by 67 billion cubic feet in the seven days ended Oct. 19 to 3.843 trillion, according to the median of 21 analyst estimates compiled by Bloomberg. The five-year average gain for the week is 65 billion.

“The expectations for a larger storage injection are putting downward pressure on prices,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “There are indications that the market wants to continue to move lower.”

Natural gas for November delivery fell 8.5 cents to settle at $3.45 per million British thermal units on the New York Mercantile Exchange. The futures are down 4.3 percent from a year ago. Gas advanced to $3.648 per million Btu on Oct. 22, the highest intraday price since Dec. 2.

February $5.50 calls were the most active gas options in electronic trading. They were 0.1 cent lower at 1.5 cents on volume of 1,090 contracts as of 2:49 p.m. Calls accounted for 55 percent of options volume.

Inventories may climb to a record 3.903 trillion cubic feet by Oct. 31, the Energy Department said Oct. 10 in its monthly Short-Term Energy Outlook.

2012 Output

U.S. natural gas production in 2012 will average 68.85 billion cubic feet a day, up 4 percent from last year and an all-time high, the department said.

Encana Corp., Canada’s largest natural gas producer, said it began resuming production at shut-in wells in August and volumes are “now largely restored.”

The company affirmed its 2012 production guidance of 3 billion cubic feet a day, according to a statement today. Encana had been curtailing output because of low prices.

The number of rigs drilling for natural gas in the U.S. rose by five to 427 last week, according to data released Oct. 19 by Baker Hughes Inc. in Houston. The rig count is down 47 percent this year.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first six months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

Mild Weather

MDA EarthSat Weather in Gaithersburg, Maryland, predicted mostly warmer-than-normal weather in the eastern U.S. through Oct. 28.

The low in New York on Oct. 26 may be 58 degrees Fahrenheit (14 Celsius), 11 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Boston may be 50 degrees, 7 more than the usual reading.

Heating demand may be 11 percent below normal on Oct. 26, data from Weather Derivatives in Belton, Missouri, show. About 50 percent of U.S. households use gas for heating, according to the Energy Department.

A lack of Pacific Ocean warming and of blocking patterns in the Atlantic will probably mean warmer-than-normal weather in the eastern U.S. for the next three months, said Todd Crawford, chief meteorologist at Weather Services International.

Temperatures in the East may be about 2 degrees above normal from November through January, while the Northwest cools, according to a seasonal forecast Oct. 22 from the Andover, Massachusetts-based company.

Price Impact

Natural gas prices may “pause” in the absence of a cold winter, Arun Jayaram, an analyst at Credit Suisse AG in New York, said in a note to clients today.

Stronger-than-forecast production from the Haynesville shale formation, drilling efficiencies and a surge in output from the Marcellus reservoir may prevent price gains, Jayaram said.

Gas futures volume in electronic trading on the Nymex was 276,720 as of 2:45 p.m., compared with the three-month average of 394,000. Volume was 338,058 yesterday. Open interest was 1.2 million contracts. The three-month average is 1.12 million.

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

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