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Natural Gas Retreats From One-Month High as Cold Outlook Fades

Feb. 27 (Bloomberg) -- Natural gas futures slid from a one-month high in New York after forecasts showed milder weather next week, crimping fuel demand.

Gas fell 0.6 percent after government midday models predicted normal to above-average temperatures for eastern and central states over the next six-to-10 days. Earlier forecasts had called for unusually cold weather. Gas also slipped after failing to push through technical resistance at $3.563, said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania.

“Apparently the Midwest snowstorm is moving east and its losing some of its intensity,” Schork said. “There wasn’t a smoking gun for why we took off this morning. There was a lot of pent up skepticism on the run-up. You are running out of winter.”

Natural gas for April delivery fell 2.2 cents to settle at $3.434 per million British thermal units on the New York Mercantile Exchange after rising to $3.554, the highest intraday price for a front-month contract since Jan. 24. Prices have climbed 2.8 percent this month, heading for the first gain since October. Trading volume was 21 percent above the 100-day average at 2:49 p.m.

April $4 calls were the most active gas options in electronic trading. They fell 0.2 cent to 0.6 cent per million Btu on volume of 1,810 contracts as of 3:41 p.m. Calls accounted for 52 percent of options volume.

Summer Spread

The discount for April contracts to October, a gauge of summer demand for gas, widened 0.5 cent to 21.4 cents after dropping to 19.9 cents, the least since Jan. 22. Over the past two weeks, the April futures have been trading at the smallest discount versus October contracts since 2004.

The relatively narrow spread may signal a slower start to the storage-injection season, which typically begins in April, in preparation for peak demand next winter, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Last year we were starting to threaten injections rather early and now the way the end of this winter has behaved doesn’t imply that is going to the case.”

Earlier, gas prices rose past the 100-day moving average at $3.463 on the outlook for a cold snap heading into March and an above-average inventory decline tomorrow.

The low temperature in Washington on March 6 may be 43 degrees Fahrenheit (6 Celsius), 8 above the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. The low in Kansas City, Missouri, the next day may be 8 above normal at 41 degrees.

About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration, the statistical division of the Energy Department.

Supply Report

Gas inventories fell 170 trillion cubic feet last week, based on 19 analyst estimates compiled by Bloomberg. The five-year average drop for the period is 118 billion and supplies fell by 106 billion a year ago.

U.S. stockpiles totaled 2.4 trillion cubic feet in the week ended Feb. 15, 18 percent above the five-year average for the period, EIA data show. Supplies were down 9.2 percent from a year earlier, when the fourth-warmest winter on record in the lower 48 states crimped demand while production rose to a record.

Production Decline

Frigid weather this week cut gas production in the midcontinent region after water produced as a byproduct of gas output froze, impeded flows. Midcontinent output has fallen by 750 million to 850 million cubic feet a day over two days because of well freeze-offs, said Luke Larson, an analyst with LCI Energy Insight, an energy analysis and consulting firm based in El Paso, Texas.

Larson said production cuts seen this week may not be reflected in the EIA storage report till next week or even the week after.

U.S. marketed gas output will increase 1.1 percent this year to 70.02 billion cubic feet a day, setting a record for the sixth straight year as output from the Marcellus shale formation in the Northeast grows, the Energy Information Administration said in its Short-Term Energy Outlook released Feb. 12 in Washington.

Stockpiles of the fuel may end the heating season in March at about 2 trillion cubic feet, down from 2.477 trillion at the same time last year, according to the monthly report.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84 percent of its energy needs in the first 11 months of last year, on pace to be the highest annual level since 1991, EIA data show.

To contact the reporter on this story: Naureen S. Malik in New York at Nmalik28@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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