Natural gas futures fell for a second day in New York, dropping to a one-month low, as forecasts called for seasonal temperatures across the Northeast and Midwest that will curb demand from power producers.
Gas declined 2.3 percent after Commodity Weather Group LLC of Bethesda, Maryland, said in a note to clients today that cooler air will prevail in the Midwest, southern and eastern states through May 16. Temperatures in New York may reach 69 degrees Fahrenheit (21 Celsius) on May 16, 2 degrees below normal, according to AccuWeather Inc. in State College, Pennsylvania. Chicago may rise to 72 degrees, 2 above average.
“It looks as if the switch from late-season heating demand to shoulder-season demand levels is under way,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
Natural gas for June delivery slipped 9.1 cents to settle at $3.92 per million British thermal units on the New York Mercantile Exchange, the lowest closing price since April 3. Trading was 9.4 percent below the 100-day average at 3:03 p.m.
July $3.60 puts were the most active options in electronic trading, rising 0.9 cent to 4.8 cents per million Btu on volume of 1,856 at 3:19 p.m. August $3.80 puts were the next most-active, gaining 1.9 cents to 14.2 cents. Puts accounted for 63 percent of options volume.
Implied volatility for June at-the-money options was 31.81 percent at 3:15 p.m., down from 31.84 percent yesterday. Implied volatility for July options was 32.19 percent, down from 32.78 percent.
The fuel has increased 17 percent this year as the coldest March since 2002 boosted heating demand and eliminated a stockpile surplus. Supplies advanced 43 billion cubic feet to 1.777 trillion in the week ended April 26, 6.2 percent below the five-year average, the Energy Information Administration reported last week.
Hedge funds and other large speculators increased bullish bets on four natural gas contracts to a record 456,475 futures equivalents in the week ended April 30, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report on May 3. It was an all-time high in records dating back to January 2010.
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
The seasonal lull in consumption combined with rising U.S. stockpiles prompted money managers to begin liquidating positions, McGillian said. Prices have dropped 11 percent from a 21-month high in April.
The EIA, the statistical arm of the Energy Department, may report May 9 that inventories grew 86 billion cubic feet in the week ended May 3, according to the median of seven analyst estimates compiled by Bloomberg. The five-year average gain for the week is 69 billion and last year’s increase was 30 billion.
“It is such a crowded trade right now that there could be a rush for the fire doors,” said Stephen Schork, president of Schork Group Inc. in Villanova, Pennsylvania. “You might get further panic selling just to keep the little profit they have left on their books.”
Contracts held by money managers represent enough gas to supply the U.S. for more than two months, leaving the market vulnerable to a sharp drop, Schork said. The retreat will meet support at $3.882 and below that at $3.749, he said.
“If the bulls can’t defend that, then we go back down to $3,” Schork said. “This thing can get pretty violent pretty quick.”
Horizontal drilling and hydraulic fracturing, or fracking, has boosted output from shale plays such as the Marcellus in the Northeast and the Eagle Ford in Texas. Increased oil and gas drilling helped the U.S. meet 84 percent of its energy needs last year, the highest level since 1991, EIA data show.
Marketed gas production will rise to 69.9 billion cubic feet a day in 2013 from 69.18 billion last year, the EIA said today in its Short-Term Energy Outlook. Consumption will increase to 70.17 billion cubic feet a day from 69.68 billion.