U.S. natural gas futures fell for a sixth day as forecasts for unusually mild February weather signaled reduced demand for the heating fuel.
Gas dropped 1.9 percent as forecasters including MDA Weather Services in Gaithersburg, Maryland, said above-normal temperatures in the central U.S. next week will sweep into the East from Feb. 8 through Feb. 12. The futures have declined 11 percent from a six-week high on Jan. 22 as fuel demand dropped because of above-average temperatures.
“We have a whole wave of warm weather coming in,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We had a spike on the cold weather that we had last week so we are getting the retracement off of that.”
Natural gas for February delivery fell 6.3 cents to $3.226 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Jan. 10. The futures have slipped 3.7 percent this month.
The February gas contract expired today. The more active March futures fell 4.7 cents, or 1.4 percent, to $3.258.
Gas trading volume was 237,601 contracts at 2:47 p.m., 18 percent below the 100-day average for the time of day. Open interest yesterday dropped to 1.156 million contracts, the least since Dec. 28.
March $3 puts were the most active gas options in electronic trading. They were 0.6 cent higher at 3.1 cents per million Btu on volume of 1,283 contracts as of 3:06 p.m. Puts accounted for 53 percent of options volume.
U.S. gas inventories totaled 2.996 trillion cubic feet in the week ended Jan. 18, 12 percent above the five-year average for the period, the Energy Information Administration said last week. The next report from the Energy Department’s statistical arm, due Jan. 31, may show a decline 205 billion cubic feet, based on the median of eight analyst estimates compiled by Bloomberg. The average decline for the week 178 billion.
Gas production in the contiguous states climbed to a record in October as more of the fuel was pumped from shale formations in the Northeast and North Dakota, the EIA said Jan. 7. Output increased 0.4 percent to 73.54 billion cubic feet a day from a revised 73.22 billion the previous month, the administration said in its EIA-914 report. The next update is due Jan. 31.
The number of rigs drilling for gas totaled 434 last week, down 42 percent from a year earlier, according to Baker Hughes Inc. in Houston.
“Even with the falling rig count, production remains at records levels, although some reports are beginning to emerge about some output declines,” Mike Fitzpatrick, editor of the Energy OverView newsletter in New York, wrote today.
Total U.S. marketed gas output will increase 0.9 percent to 69.84 billion cubic feet a day 2013, setting a record for the sixth consecutive year, EIA estimates show.
Excess supplies of ethane because of strong production growth and limiting processing capacity “has emerged as an important factor supporting U.S. natural gas supply in recent months,” Johan Spetz, an analyst with Goldman Sachs Group Inc. in New York, said in a note to clients yesterday.
“The petrochemical industry will struggle to absorb all the ethane production growth until new large-scale crackers start operations in 2017-2018,” he said. Processing plants are selling ethane as part of gas supply used to fuel electricity generators, rather than separating ethane as gas liquid used in manufacturing.
This “ethane rejection” of about 200,000 barrels a day is contributing to about 300 million cubic feet a day of gas supply, Spetz said.
Momentum in gas prices is fading after the mid-January rally, based on a technical indicator called the moving average convergence-divergence, or MACD, said Chris Kostas, senior power and gas analyst for Energy Security Analytics Inc. in Andover, Massachusetts.
MACD tracks changes in price momentum based on the difference between the 12-day and 26-day moving averages of gas futures. Today’s settlement below $3.24 per million Btu means the MACD line crossed below a line charting the nine-day moving average, which is a bearish signal, he said.
“Good support seems to exist between $3.10 and $3.20,” Kostas said. “It may be too early to slice through those support levels in the short-term.”