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Natural Gas Falls as Moderating Weather Cuts Heating Demand

Nov. 28 (Bloomberg) -- Natural gas futures declined for the third time in four days as forecasts for mild weather next week signaled reduced demand for the heating fuel.

Gas dropped 1.9 percent as companies including MDA Weather Services predicted above-normal temperatures for most of the lower 48 states over the next 10 days. Unusually cold weather has helped reduce a stockpile surplus this month.

“The weather continues to look very, very moderate in the first portion of December,” said Kyle Cooper, director of research with IAF Advisors in Houston. “Mother Nature clearly remains the huge primary driver for natural gas.”

Natural gas for December delivery fell 7.3 cents to $3.696 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Nov. 12. Prices are up 9.9 percent from a year ago.

December futures expired today. The more active January contract dropped 9.1 cents to $3.801 per million Btu.

Gas has slumped 6 percent since rising to 13-month intraday high of $3.933 on Nov. 23 as revised forecasts showed milder weather in early December.

January $4 calls were the most active options in electronic trading. The calls fell 3.3 cents to $7.6 cents per million Btu on volume of 1,099 at 3:36 p.m.

Warm weather building up over the next five days in the western two-thirds of the U.S. will spread to the East Coast next week, according to MDA in Gaithersburg, Maryland.

Rising Temperatures

The low temperature in New York City on Dec. 7 will be 45 degrees Fahrenheit (7 Celsius), 10 above normal, according to AccuWeather Inc. in State College, Pennsylvania. Chicago’s low will be 8 above normal at 33 degrees.

Heating demand in the 48 contiguous states will be 34 percent below normal from Dec. 4 through Dec. 8, data from Weather Derivatives in Belton, Missouri, show. About half of U.S. households use gas for heating.

Gas stockpiles probably fell 6 billion cubic feet last week to 3.867 trillion cubic feet, based on a median of 21 analyst estimates compiled by Bloomberg. The five-year average change for the week is a decline of 18 billion. Supplies rose by 2 billion the same week last year, according to the department.

Cooper said supplies may have fallen by as little as 1 billion cubic feet last week, based on moderate weather and lower demand because of the Thanksgiving holiday.

Supply Report

U.S. inventories totaled 3.873 trillion cubic feet in the week ended Nov. 16 after rising to a record 3.929 trillion two weeks earlier, according to the Energy Department, which is scheduled to release its weekly stockpile report tomorrow.

Inventory levels expanded amid rising U.S. output, as energy companies boosted production from shale formations. Marketed gas production will average 68.84 billion cubic feet a day this year, up 4 percent from a record in 2011, according to the Energy Department.

The boom in oil and natural gas output 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 303,331 as of 2:42 p.m., compared with the three-month average of 359,000. Volume was 286,359 yesterday. Open interest was 1.16 million contracts. The three-month average is 1.15 million.

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

To contact the reporter on this story: Naureen S. Malik in New York at Nmalik28@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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