Natural Gas Declines on Outlook for Moderating Eastern U.S. Heat

Natural gas futures in New York fell for the second time in three days as the outlook for moderating heat next week signaled reduced demand for the power-plant fuel.

Gas slid 0.6 percent as forecasts for the Midwest and East turned cooler for July 24 through July 28, with parts of the region seeing below-normal readings, according to MDA Weather Services in Gaithersburg, Maryland. Prices jumped 5 percent yesterday after the first below-average U.S. inventory gain in seven weeks.

“Next week, the question is what will demand be like; it turned cooler but how much cooler are we going to get, is going to be the key,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “We could resume the downward trend in prices or, if we see a warm-up later in the week, we could see prices go back up and test $4.”

Natural gas for August delivery fell 2.3 cents to settle at $3.789 per million per million British thermal units on the New York Mercantile Exchange. Volume was 29 percent below the 100-day average at 2:44 p.m. Gas yesterday jumped to $3.812, the highest settlement since June 20. Prices gained 4 percent this week, capping the third consecutive weekly gain. The futures are up 13 percent this year.

The discount of August to October futures was steady at 0.7 cent.

October $5 calls were the most active options in electronic trading. They were unchanged at 0.8 cent per million Btu on volume of 5,289 at 2:46 p.m. Calls accounted for 78 percent of trading volume. Implied volatility for at-the-money options expiring in September was 31.02 percent at 2:45 p.m., compared with 30.49 percent yesterday.

Washington Weather

The high temperature in Washington on July 23 may be 86 degrees Fahrenheit (30 Celsius), 2 below normal, and Chicago may be 5 lower than the usual reading at 79 degrees, according to AccuWeather Inc. in State College, Pennsylvania. A heat wave this week kept temperatures above 90s from the Northeast into the mid-Atlantic and Midwest.

Electricity generators are the largest U.S. consumer of gas, accounting for 32 percent of demand, according to the Energy Information Administration, the statistical arm of the Energy Department.

Power consumption on the 13-state Eastern grid operated by PJM Interconnection LLC will drop to 133,882 megawatts during the highest-demand hour on July 24 from yesterday’s peak of 158,418 megawatts, PJM said on its website. The PJM network, the largest in the U.S., serving more than 60 million people, stretches from New Jersey into North Carolina and Washington.

Supply Report

Gas stockpiles expanded by 58 billion cubic feet to 2.745 trillion in the week ended July 12, below the five-year average gain of 70 billion for the period, the EIA said yesterday.

A deficit versus the historic norm widened to 1.2 percent from 0.8 percent the previous week. A deficit versus year-earlier levels narrowed to 13.1 percent from 14.2 percent.

The U.S. expects marketed natural gas production to increase 1.1 percent to average 69.96 billion cubic feet a day in 2013 from last year, the EIA said in its July 9 Short-Term Energy Outlook. Gains are being driven by new wells being connected at shale deposits such as the Marcellus in the Northeast, the government said.

The gas-rig count increased for the fourth consecutive week, rising by seven to 369, the most since April 19, Baker Hughes Inc. data today showed. The total has dropped 14 percent this year.

The U.S. met 89 percent of its own energy needs in March, the highest monthly rate since April 1986, EIA data show.

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