Natural gas futures fell the most in two weeks in New York after a U.S. stockpile increase exceeded forecasts.
Gas dropped 3.4 percent, the biggest one-day decline since May 2, after the Energy Information Administration said inventories rose 99 billion cubic feet in the week ended May 10 to 1.964 trillion. Analyst estimates compiled by Bloomberg showed a gain of 95 billion. Gas prices climbed 4.1 percent the previous three days on speculation that an unusually warm end to May would spur demand from power plants to run air conditioners.
“We did see a larger-than-expected build in storage for the second consecutive week,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “The rally that preceded this drop was not well-supported fundamentally. We are seeing year-on-year supply growth, so production growth against the demand decline, that’s bearish.”
Natural gas for June delivery dropped 13.8 cents to settle at $3.932 per million British thermal units on the New York Mercantile Exchange. Futures trading volume was 6.4 percent above the 100-day average at 4:25 p.m. Prices are up 17 percent this year.
June $4.80 calls were the most-active option in electronic trading. They fell 0.1 cent to 0.1 cent per million Btu on volume of 5,028 at 4:24 p.m. June $3.75 puts were the next-most active, gaining 1.1 cents to 2.2 cents on volume of 1,853. Calls accounted for 58 percent of trading.
Implied volatility for at-the-money options expiring in June was 29.51 percent at 4:15 p.m., down from 32.58 percent yesterday. Volatility for July options was 30.26 percent, compared with 30.2 percent yesterday.
The magnitude of the price move down shows “a lot of longs in the market were caught by surprise,” said Cindy Wexler, an independent gas trader on the Nymex floor. There is technical support for gas prices at $3.91 and if they don’t hold that level, the futures may drop to the next support area at $3.883, she said.
Natural gas has slumped 12 percent since touching a 21-month high of $4.444 per million Btu on May 1 after the peak heating-demand season, extended by the coldest April since 1997, drew to a close.
Prices had surged into early spring as a supply deficit to the five-year average hovered near a record low. Hedge funds and other large speculators increased bullish bets on natural gas prices last month to an all-time high in records dating back to January 2010, according to the Commodity Futures Trading Commission’s May 10 Commitments of Traders report.
The stockpile increase last week was larger than the five-year average gain for the week of 83 billion cubic feet, department data show. A deficit to the five-year average narrowed to 4.1 percent from 5 percent the previous week. Supplies were 26.1 percent below year-earlier inventories, compared with 28.3 percent in last week’s report.
Commodity Weather Group LLC predicted that above-normal temperatures in central and eastern states over the next five days will give way to a cool front from May 21 through May 25. The heat may return to the central U.S. at the end of the month, the Bethesda, Maryland-based forecaster said.
“The real change this week is those weather maps turned decidedly warmer for the balance of May and most importantly we are seeing that heat begin to move into Texas,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. Texas and the Southeast states account for nearly half of U.S. summer electric power demand, she said.
The outlook for cooling demand as hot weather moves may keep prices from cratering, she said.
The discount of June to October contracts, a measure of summer supply expectations, widened 1.1 cents to 8.5 cents. The discount of October to January contracts widened 1.7 cents to 32.5 cents.
Gas consumption typically slumps after the peak heating season and before hot weather drives demand for electricity to run air conditioners. About 50 percent of U.S. households use gas for heating, according to the EIA, the statistical arm of the Energy Department. Power generation accounts for 33 percent of gas consumption.
The EIA estimates that U.S. marketed production in 2013 will set a record for the sixth straight year as new wells are brought online at shale deposits such as the Marcellus in the Northeast and the Bakken in North Dakota. Output will climb 1 percent to 69.9 billion cubic feet a day, according to the May 7 Short-Term Energy Outlook. Consumption will increase to 70.17 billion cubic feet a day from 69.68 billion.