Natural gas retreated as forecasts for above-average temperatures spurred concern that the U.S. winter will be too mild to erode a stockpile surplus.
The futures dropped 1.1 percent as warmer-than-normal weather will blanket the central and eastern half of the country Jan. 6 through Jan. 10, according to MDA Weather Services in Gaithersburg, Maryland. Prices pared early declines after a midday forecast showed colder weather.
“This market needs more than six to 10 days of cold,” said Kyle Cooper, director of commodities research at IAF Advisors in Houston. “It needs a couple weeks of cold and it doesn’t look like we’re going to get that.”
Natural gas for January delivery fell 3.8 cents, or 1.1 percent, to settle at $3.354 per million British thermal units on the New York Mercantile Exchange. Gas has risen 12 percent this year. The January contract expired today. The more actively traded February futures dropped 1.3 cents to $3.412. Futures trading volume was down 51 percent from the 100-day average.
The noon forecast update from the National Weather Service predicted lower temperatures for the next two weeks, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland. Temperatures for Jan. 3 through Jan. 5 may fall into the 20s Fahrenheit (minus 2 to minus 7 Celsius) in New York, into the teens in the upper Midwest, and below zero in some interior portions of New England, he said.
“The forecast intensified the cold for next week and faded the warming for the week after,” Rogers said. “Bottom line is there were demand gains for both weeks throughout the Midwest and East Coast.”
The Energy Department may report tomorrow that fuel stockpiles declined 72 billion cubic feet in the week ended Dec. 21 to 3.652 trillion, according to the median of 10 analyst estimates compiled by Bloomberg. The report is being delayed by one day because of the Christmas holiday.
Supplies swelled to a record for a fourth consecutive year last month, reaching 3.929 trillion cubic feet. Surplus inventories were 61 percent above the five-year average in March after mild winter weather reduced heating demand. The surplus was 10 percent in last week’s report.
“Most of the major signals point to a period of broad warmth from the plains eastward,” MDA Weather Services said.
Chicago will decline to a low of 19 degrees on Jan. 7, 1 degree above normal, according to Accuweather Inc. in State College, Pennsylvania. Iowa City, Iowa, will drop to 18 degrees, 4 higher than average. Denver will fall to a low of 27 degrees Fahrenheit (minus 3 Celsius) on Jan. 6, 11 higher than usual.
“Although we are going to see some cold in the next week or so, it’s not going to last much longer than that,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We have to keep an eye out on how that storage number comes out.”
Demand for gas-fueled electricity generation may also decrease as output rises from U.S. atomic reactors. U.S. nuclear-power production rose for a third day as the Tennessee Valley Authority boosted output at the 1,104-megawatt Browns Ferry 2 reactor in Alabama and reconnected it to the grid.
Total generation increased by 664 megawatts, or 0.7 percent, to 91,705 megawatts, the highest level since Sept. 14, according to U.S. Nuclear Regulatory Commission data compiled by Bloomberg. Capacity was 89 percent.
U.S. gas production will average a record 69.22 billion cubic feet a day this year as a combination of horizontal drilling and hydraulic fracturing, or fracking, increases output from formations including the Marcellus shale, the Energy Department reported in its Dec. 11 Short-Term Energy Outlook.
Drilling for oil has also expanded. The country met 83 percent of its energy needs in the first nine months of the year, on pace to be the highest annual rate since 1991, department data show.
Gas futures volume in electronic trading on the Nymex was 154,414 as of 3:04 p.m., compared with the three-month average of 355,000. Volume was 164,316 yesterday. Open interest was 1.15 million contracts. The three-month average is 1.17 million.
The exchange has a one-business-day delay in reporting full volume and open interest data.