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Natural Gas Futures Drop on Outlook for Moderate Temperatures

Dec. 21 (Bloomberg) -- Natural gas futures slid in New York for the second time in three days on speculation that temperatures won’t be low enough to erase a surplus of the fuel in storage.

Gas dropped 0.3 percent after MDA Weather Services in Gaithersburg, Maryland, predicted mostly normal weather in the eastern half of the U.S. from Dec. 26 through Jan. 4. Inventories of the heating fuel were 10.2 percent above the five-year average in the week ended Dec. 14, Energy Department data show.

“There’s downside risk if the weather forecasts continue to moderate,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “We still have ample supplies in inventory by historical standards.”

Natural gas for January delivery fell 1.1 cents to settle at $3.451 per million British thermal units on the New York Mercantile Exchange. The futures are up 15 percent this year, heading for the first annual gain since 2007. Prices rose 4.1 percent this week, the first weekly increase since Nov. 23.

March $4.00 calls were the most active gas options in electronic trading. They were 0.4 cent lower at 7.3 cents on volume of 1,632 contracts as of 3:29 p.m. Calls accounted for 68 percent of the volume.

The low in New York on Dec. 30 may be 29 degrees Fahrenheit (minus 1.7 Celsius), 1 higher than usual, according to AccuWeather Inc. in State College, Pennsylvania.

Warm Year

This year will probably overtake 1998 to become the warmest year on record in the U.S., according to the National Oceanic and Atmospheric Administration.

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.

An Energy Department report yesterday showed inventories dropped 82 billion cubic feet in the week ended Dec. 14 to 3.724 trillion. The stockpile decrease was smaller than the five-year average decline for the week of 144 billion cubic feet, department data show.

The gas inventory surplus to the average has slipped from a six-year high of 61 percent in March, department data show.

“It is difficult to remain constructive on natural gas with the storage fundamentals,” Mike Fitzpatrick, the editor of the Energy OverView newsletter in New York, said today.

The U.S. raised its forecast for natural gas output in 2012 by 0.6 percent in a report Dec. 11.

Marketed Production

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 increase 0.5 percent in 2013 to 69.59 billion a day, department estimates show.

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.

The number of rigs drilling for gas in the U.S. rose by 13 to 429 this week, according to data from Baker Hughes Inc. in Houston. The rig count is down 47 percent this year.

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 lasts through 2012, it will be the highest level of self-sufficiency since 1991.

Gas futures volume in electronic trading on the Nymex was 247,244 as of 3:14 p.m., compared with the three-month average of 362,000. Volume was 373,543 yesterday. Open interest was 1.17 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;

To contact the editor responsible for this story: Dan Stets at

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