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Natural Gas Futures Decline on Smaller-Than-Expected Supply Drop

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Jan. 24 (Bloomberg) -- Natural gas futures declined for a third day in New York after a government report showed that U.S. stockpiles fell less than expected last week.

Gas dropped 3 percent after the Energy Information Administration said inventories slid 172 billion cubic feet in the week ended Jan. 18 to 2.996 trillion cubic feet. Analyst estimates compiled by Bloomberg showed an expected withdrawal of 175 billion. Prices extended declines after a government forecast indicated milder weather.

“The storage number came out on the low side of estimates,” said John Woods, president of JJ Woods Associates and floor trader on the New York Mercantile Exchange. “The extended weather forecasts are looking mild and you just can’t sustain higher prices.”

Natural gas for February delivery fell 10.8 cents to settle at $3.446 per million British thermal units on the Nymex. Trading was up 48 percent from the 100-day average at 2:38 p.m. The futures have risen 35 percent from a year ago.

April $2.90 puts were the most active gas options in electronic trading. They were 0.4 cent higher at 1.5 cents on volume of 4,509 contracts as of 3:16 p.m. Puts accounted for 51 percent of options volume.

The stockpile decrease was smaller than the five-year average decline for the week of 176 billion cubic feet, according to the EIA, a unit of the Energy Department. A surplus to the five-year average rose to 12 percent from 11.1 percent the previous week. Supplies were 5 percent below year-earlier inventories, compared with 4.4 percent in last week’s report.

Noon Weather

A midday update to the National Weather Service’s Global Forecast System model showed mostly normal or higher-than-usual temperatures in the lower 48 states from Feb. 3 through Feb. 7. Earlier forecasts had shown colder-than-average weather during the period.

The low in New York on Feb. 1 may be 31 degrees Fahrenheit (minus 1 Celsius), 4 above average, according to AccuWeather Inc. in State College, Pennsylvania. The low in Cleveland may be 24 degrees, matching the normal reading.

About 50 percent of U.S. households use gas for heating, data from the Energy Information Administration show.

Last year was the warmest in records going back to 1895 for the 48 contiguous U.S. states and the second-worst for weather extremes including drought, hurricanes and wildfires, according to the National Oceanic and Atmospheric Administration.

Gas output in the lower-48 states rose to an all-time high in October as more of the fuel was pumped from shale formations in the Northeast and North Dakota, the EIA said Jan. 7.

Gross gas production increased 0.4 percent to 73.54 billion cubic feet a day from a revised 73.22 billion in September, the administration said in the monthly EIA-914 report.

Shale Gas

Supplies from the “other states” category rose 1.8 percent to 23.94 billion cubic feet a day from a revised 23.51 billion in September. Production in that region advanced “as operators reported new wells coming online in the Marcellus and Bakken shale plays,” the agency said.

Output rose to an all-time high of 28.5 trillion cubic feet in 2011, led by record output from shale deposits, the EIA said in a separate report Jan. 7. Shale accounted for 30 percent of total production in 2011, up from 22 percent the previous year.

U.S. marketed gas production in 2013 will average a record 69.84 billion cubic feet a day, up 0.9 percent from 69.19 in 2012, the administration said Jan. 8 in its monthly Short-Term Energy Outlook.

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 nine months of last year, government data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

To contact the reporters 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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