Natural Gas Drops Most in Five Weeks on December Forecast

Natural Gas Tumbles Most in 15 Weeks on Warmer December Forecast
Natural gas is flared near a pumping unit at a crude oil well site outside South Heart, North Dakota. Heating demand in the lower 48 states will be 53 percent below the seasonal norm from Dec. 2 through Dec. 6, data from Weather Derivatives, show. Photographer: Daniel Acker/Bloomberg

Natural gas tumbled the most in five weeks as revised forecasts showing an unusually warm start to December signaled reduced demand for heating fuels.

Futures fell 4.4 percent, closing with the biggest one-day decline since Oct. 22, as companies including Commodity Weather Group LLC predicted above-normal temperatures for the lower 48 states in the next six to 10 days. Gas rose to a 13-month high last week on forecasts showing colder weather in early December and a government report of a bigger-than-expected supply drop.

“A little bit of cold that we had is coming to a quick end,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “If the weather does turn out to be warmer than normal, we could see” more gas additions to stockpiles.

Natural gas for December delivery fell 17.1 cents to $3.73 per million British thermal units on the New York Mercantile Exchange after dropping as much as 5.1 percent to $3.704. If prices had closed there it would have been the biggest decline since Aug. 10. The futures are up 5.3 percent from a year ago.

Gas climbed to $3.933 during the previous trading session, the highest intraday price since Nov. 1, 2011. Electronic trading volume was 271,004 contracts today at 2:42 p.m. exceeding the 154,615 contracts that traded on Nov. 23.

“The perception is that the market was a bit overbought last week” amid low volume because of the U.S. Thanksgiving holiday, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It looks like the drive to $4 has definitely stalled for the time being.”

Gas Options

December $3.70 puts were the most active options in electronic trading. They rose 1.3 cents to 1.8 cents on volume of 1,037 lots at 3:10 p.m. December options expire tomorrow and futures contracts for the same month expire on Nov. 28.

December may start much warmer than usual across the U.S., with highs possibly reaching into the 60s Fahrenheit (15 to 20 Celsius) in the Midwest and along the East Coast, said Matt Rogers, president of Commodity Weather Group in Bethesda, Maryland.

Average temperatures from Dec. 1 to Dec. 5 may be 5 degrees above normal in the East and as much as 15 degrees higher across the Midwest, including Chicago, Rogers said.

“After cool conditions linger in the Midwest and East this week, a strong warm-up is still slated to expand across the nation,” Rogers said. The warm weather won’t dominate December as a whole, Rogers said in a note to clients today.

By Dec. 6, temperatures across the northern Great Plains and the South are expected to return to seasonal levels while remaining about 5 degrees above normal in the U.S. Northeast, Rogers said.

Chicago Low

The low in New York on Dec. 3 may be 46 degrees Fahrenheit (8 Celsius), 10 above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago may be 39 degrees, 12 more than the usual reading.

Heating demand in the contiguous 48 states will be 53 percent below the seasonal norm from Dec. 2 through Dec. 6, data from Weather Derivatives show. Demand was 18 percent below normal in the week ended Nov. 24, the Belton, Missouri-based forecaster said.

About 50 percent of U.S. households use gas for heating, according to the Energy Department.

U.S. gas stockpiles fell 38 billion cubic feet in the week ended Nov. 16 to 3.873 trillion, the department said. The five-year average change for the week was a gain of 3 billion.

Supply Report

Inventories in the so-called producing region in the south-central U.S. were cut by 7 billion cubic feet because one or more producers reclassified supplies from working gas, or stockpiles available for delivery, to base gas, or supplies needed to maintain adequate pressure, the department said.

Inventories probably fell 5 billion cubic feet last week, based on warmer weather, and may show small gains the following two weeks if temperatures don’t drop, Chirichella said.

The five-year average decline for the week ended Nov. 23 is 18 billion cubic feet. The department is scheduled to release its stockpile report for the week on Nov. 29.

While the market fell today, a trend higher for gas futures is intact as long as prices hold above the $3.50-to-$3.60 support level, Chirichella said.

Open interest was 1.19 million contracts on Nov. 23 on the Nymex versus the three-month average of 1.15 million. The exchange has a one-business-day delay in reporting full volume and open interest data.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE