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Natural Gas Declines to Six-Week Low on Weather Outlook

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Dec. 11 (Bloomberg) -- Natural gas futures dropped in New York, falling to a six-week low for a second day, on forecasts of milder-than-average weather that may limit demand for the heating fuel.

Gas slipped 1.4 percent after WSI Corp. in Andover, Massachusetts, predicted mostly above-normal temperatures in the eastern half of the U.S. from Dec. 16 through Dec. 20. The low in New York on Dec. 17 may be 36 degrees Fahrenheit (2 Celsius), 4 more than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania.

“December has been a dud so far in terms of heating demand,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “I was under the impression that we were going to see colder weather than we had last year. The forecasts so far aren’t very supportive.”

Natural gas for January delivery fell 4.8 cents to $3.412 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Oct. 26. Prices are up 14 percent this year.

February $3 puts were the most active gas options in electronic trading. They were 0.5 cent higher at 3.6 cents on volume of 1,762 contracts as of 3:26 p.m. Puts accounted for 65 percent of options volume.

Futures briefly pared losses after a midday update to the National Weather Service’s Global Forecast System showed widespread colder-than-normal weather in the eastern and central U.S. from Dec. 21 through Dec. 25.

Midday Forecast

“The model is quite a bit colder than our forecast across the eastern half” of the country, MDA Weather Services in Gaithersburg, Maryland, said in a note to clients.

The low in Chicago on Dec. 17 may be 29 degrees Fahrenheit, 7 above normal. About 50 percent of U.S. households use gas for heating, Energy Department data show.

This year will probably overtake 1998 to become the warmest year on record in the U.S., the National Oceanic and Atmospheric Administration said in a monthly climate report.

The first 11 months were the warmest start to any year in the contiguous states since the nation began keeping records in 1895, NOAA’s Climatic Data Center said Dec. 6.

The U.S. raised its forecast for natural gas output in 2012 by 0.6 percent in a report today.

Marketed gas production will average 69.22 billion cubic feet a day this year, up from 68.84 billion estimated in November, the Energy Department said in its monthly Short-Term Energy Outlook. Output may rise 0.5 percent in 2013 to 69.59 billion a day, department estimates show.

Hub Price

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $2.78 per million British thermal units, compared with the previous estimate of $2.77, according to the report from the department’s Energy Information Administration.

U.S. gas inventories fell 73 billion cubic feet in the week ended Nov. 30 to 3.804 trillion, erasing a year-over-year surplus for the first time in 2012, according to a department report last week.

Supplies were 0.9 percent below year-earlier levels and 4.6 percent above the five-year average. The surplus to the average has declined from a six-year high of 61 percent in March, department data show.

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 eight 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 354,754 as of 2:49 p.m., compared with the three-month average of 364,000. Volume was 484,964 yesterday. Open interest was 1.14 million contracts. The three-month average is 1.16 million.

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

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net

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

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