Natural Gas Falls After Bigger-Than-Average Supply Gain

Natural gas futures dropped to a two-week low in New York after a government report showed U.S. stockpiles climbed by more than the five-year average last week.

Gas declined 0.5 percent after the Energy Department said inventories expanded by 67 billion cubic feet in the week ended Oct. 19 to 3.843 trillion cubic feet. Analyst estimates compiled by Bloomberg showed a gain of 67 billion. A survey of Bloomberg users predicted an increase of 66 billion. Supplies rose to a record 3.852 trillion cubic feet last year.

“The short story is that we’re not running out of gas,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We’re within 9 billion cubic feet of an all-time high storage level.”

Natural gas for November delivery fell 1.6 cents to $3.434 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Oct. 8. The futures have dropped 6.1 percent from a year ago.

November $3.50 calls were the most active gas options in electronic trading. They were 3 cents lower at 0.4 cent on volume of 1,115 contracts as of 3:46 p.m. Calls accounted for 56 percent of options volume.

The futures have created a bearish “double top” formation after failing to breach $3.65 per million Btu earlier this week and last week, said Aaron Calder, senior market analyst at Gelber & Associates in Houston. Prices may slip to $3.225 per million Btu, he said.

Stockpile Report

The stockpile increase was bigger than the five-year average gain for the week of 65 billion cubic feet, department data show. A surplus to the five-year average fell to 7 percent from 7.1 percent the previous week. Supplies were 4.1 percent above year-earlier levels, down from 5 percent a week earlier.

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

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

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 was down 47 percent this year.

Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly warmer-than-normal weather on the East Coast through Oct. 29.

The low in New York on Oct. 27 may be 56 degrees Fahrenheit (13 Celsius), 9 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Boston may be 52 degrees, also 9 more than the usual reading.

Mild Weather

Heating demand in the Northeast may be 60 percent below normal on Oct. 27, 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.

LNG Exports

Cheniere Energy Inc., the first company to win approval to export gas from the continental U.S., is considering a 50 percent expansion of capacity at its Sabine Pass terminal in Louisiana as LNG demand rises.

“When we marketed the project at Sabine Pass, clearly we had more demand than we could satisfy,” Nicolas Zanen, the vice president of trading at Cheniere, said in an interview in Singapore today. “It makes sense to look at expanding to a fifth and a sixth” train for liquefying gas, he said. No timeline for enlarging the facility has been set, he said.

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.

Gas futures volume in electronic trading on the Nymex was 375,426 as of 3:03 p.m., compared with the three-month average of 393,000. Volume was 318,554 yesterday. Open interest was 1.19 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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