Natural Gas Declines After Supply Drop Misses Estimates

Natural gas futures fell from a one-year high in New York after a government report showed a stockpile drop that was short of analyst estimates.

Gas declined 1.5 percent, closing lower for the first time this week. The Energy Department said stockpiles dropped 18 billion cubic feet last week to 3.911 trillion after rising to a record the previous week. Analyst estimates compiled by Bloomberg showed an expected decline of 22 billion. Prices had climbed 8.6 percent this week in anticipation of the report.

“We had a panic buying spree and the market overbought this number,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “It was a decent delivery. Given the weather outlook I don’t think this number is going to stand.”

Gas for December delivery slid 5.7 cents to settle at $3.703 per million British thermal units on the New York Mercantile Exchange after rising to $3.83, the highest intraday price since Nov. 4, 2011. The futures are up 8.8 percent from a year ago.

December $4 calls were the most active options in electronic trading today. They fell 1 cent to 1.2 cents on volume of 1,387 lots at 3:11 p.m. Calls accounted for 59 percent of options volume.

Last week’s supply decline was less than the five-year average change for the period, which was a gain of 17 billion cubic feet, according to Energy Department data. Inventories rose 20 billion the same week last year.

Storage Surplus

A stockpile surplus to the five-year average fell to 5.6 percent for the week ended Nov. 9 from 6.6 percent the previous week, making it the smallest gap since Oct. 28, 2011, department data show.

“Last year we didn’t start drawing down storage till the last week of November, so it’s a pretty interesting scenario,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “You are probably going to get a pretty consistent drawdown on supply now as a function of weather.”

Temperatures will be above normal in the western two-thirds of the U.S. over the next six to 10 days and normal along the East Coast, Eric Wertz, a meteorologist with MDA Earthsat Weather in Gaithersburg, Maryland, said in a note to clients today. The eastern states will see seasonal or colder-than-normal weather over the next 11 to 15 days, he said.

The low in Detroit will be 41 degrees Fahrenheit (5 Celsius), 7 above normal on Nov. 21, before dropping to 11 below normal at 20 degrees on Nov. 27, according to AccuWeather Inc. in State College, Pennsylvania. New York City’s low will be 8 above the usual reading at 48 degrees on Nov. 22 before dropping to 27 degrees a week later, 11 below normal.

Warm Winter

Gas prices fell to a 10-year low in April after mild winter weather crimped demand for heating fuels while production rose to a record.

About 50 percent of U.S. households use gas for heating, department data show.

Blackouts following Hurricane Sandy made it difficult to predict how much demand destruction there was for gas last week, as a nor’easter that brought snow to the East Coast boosted heating needs, Schork said.

Sandy, which made landfall in southern New Jersey on Oct. 29, pounded the East Coast with high winds, rain and flooding. About 8.5 million homes and businesses were without power at the storm’s peak.

Gas production

U.S. gas output will average 68.84 billion cubic feet a day in 2012, up 4 percent from last year, the department said in its Nov. 6 Short-Term Energy Outlook.

The number of rigs drilling for natural gas fell by 11 to 413 last week, the least since June 1999, data from Baker Hughes Inc. show.

Power plants will burn a record 25.37 billion cubic feet a day of gas this year, up 22 percent from 2011, the department said. The rate will decline by 11 percent in 2013 as higher gas prices spur a rise in coal use, the federal agency said.

Robust demand from electricity generators “served as a corrective mechanism” to reduce the storage surplus, John Gerdes, an analyst with Canaccord Genuity in Houston, said in a note to clients today.

Over the past four weeks, power plants consumed 2.2 billion cubic feet a day more gas than a year earlier, he said. The seven-day moving average as of today showed the year-over-year gain fell to between 1.5 billion and 2 billion cubic feet a day, according to Gerdes.

Gas futures volume in electronic trading on the Nymex was 332,013 as of 2:45 p.m., compared with the three-month average of 367,000. Volume was 409,902 yesterday. Open interest was 1.16 million contracts. The three-month average is 1.14 million.

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

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