Natural gas futures dropped to a 15-week low in New York on speculation that unusually mild weather next week will curtail demand for the heating fuel.
Gas fell 3.3 percent as forecasts from companies including MDA Weather Services in Gaithersburg, Maryland, turned warmer for the eastern and central U.S. through Jan. 18. Gas has dropped 21 percent from a one-year high on Nov. 23 as stockpiles hovered near seasonal records.
“We are going to have incredibly unseasonably warm temps here in the next week,” said Brad Florer, a trader at Kottke Associates LLC in Louisville, Kentucky. “You couple that with the fact that we have high storage to begin with, it puts gas in a very bearish place.”
Natural gas for February delivery fell 10.5 cents to $3.113 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Sept. 26. Trading volume was 329,359 contracts as of 2:41 p.m., up 12 percent from the 100-day average.
The futures climbed to $3.933 on Nov. 23 before plummeting to $3.05 on Jan. 2, the lowest intraday price since Sept. 26. The futures are up 3.4 percent from a year ago.
The low temperature in New York City on Jan. 15 may be 42 degrees Fahrenheit (6 Celsius), 15 above normal, with the high of the day reaching 50 degrees, 12 above normal, according to AccuWeather Inc. in State College, Pennsylvania. Chicago’s low on Jan. 14 will be 10 above the usual reading at 28 degrees.
About 50 percent of U.S. households use gas for heating, according to the Energy Department. Last winter was the fourth-warmest on record, which cut consumption during the peak-demand season for the fuel.
“We see prices ultimately testing $2.20 and even last year’s sub-$2, if the weather continues to moderate,” Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today. “Like last year, we will be in a situation where we will be coming out of the peak-demand season with ample storage. The bearish sentiment will become overwhelming.”
February $3 puts were the most active gas options in electronic trading. They were 2.4 cents higher at 5 cents per million Btu on volume of 2,969 contracts as of 2:57 p.m. February $2.90 puts, the second most active, doubled to 2.4 cents on volume of 1,026 lots. Puts accounted for 60 percent of options volume.
The discount of the February contract to April futures, reflecting cold and warm weather months, widened by 1.2 cents to a record 6.9 cents.
The relative strength index fell to 35.5 as of 2:35 p.m., the lowest level since April. A number below 30 is considered by some traders to be a signal to buy contracts while a number above 70 may be a sell signal.
The RSI may indicate a brief “bear market correction” but prices will probably decline heading into early February, said Brian LaRose, a technical analyst at United-ICAP, a brokerage firm in Jersey City, New Jersey.
Gas typically drops 42 percent from late November to the first week of February, based on data going back to 1990, he said. The seasonal trend means futures may bottom out at about $2.28 per million Btu at the start of next month, LaRose said.
U.S. gas stockpiles totaled 3.517 trillion cubic feet in the week ended Dec. 28, 12.4 percent above the five-year average for the period, according to the Energy Department, which is scheduled to release its weekly supply report tomorrow.
Inventories probably fell by 190 billion cubic feet last week, based on the median of 17 analyst estimates compiled by Bloomberg. The five-year average decline for the week is 121 billion, according to Martin King, an analyst at FirstEnergy Capital Corp. in Calgary.
Supplies may rise to an all-time high of 4.02 trillion cubic feet in October, setting a record for a fifth straight year as production climbs, the department said in its monthly Short-Term Energy Outlook, released yesterday.
Marketed gas production will average 69.84 billion cubic feet a day in 2013, up 0.4 percent from 69.59 billion estimated in December, the department said in the outlook. Supplies will increase 0.9 percent from last year’s record of 69.19 billion.
U.S. gas output will climb to a record for the sixth straight year led by gains at shale reserves. Drilling technologies such as hydraulic fracturing, or fracking, and horizontal wells, which can bisect more pockets of gas than vertical wells, have made it more economical to extract the fuel from rock formations such as the Marcellus in the Northeast.
The boom in natural gas and oil production helped the U.S. meet 83 percent of its energy needs in the first nine months of 2012, on course to be the highest annual rate since 1991, Energy Department data show.