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Natural Gas Declines Amid Forecasts for Cooler August Weather

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July 24 (Bloomberg) -- Natural gas futures dropped in New York for the third time in four days as meteorologists predicted cooler weather that would limit electricity demand.

Gas slipped 1.2 percent as WSI Corp. in Andover, Massachusetts, said temperatures would be mostly normal in the lower-48 states from July 29 through Aug. 7 after a heat wave last week in the Northeast and Great Lakes region. The high in New York on Aug. 2 may be 84 degrees Fahrenheit (29 Celsius), matching the usual reading, according to AccuWeather Inc.

“Cooling demand is definitely going to be weaker as we get into August,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “It’s going to be hard for the gas market to get going. We seem to be in a tight trading range.”

Natural gas for August delivery fell 4.5 cents to settle at $3.698 per million British thermal units on the New York Mercantile Exchange. Trading volume was 33 percent below the 100-day average at 2:43 p.m. Prices have climbed 10 percent this year.

The discount of August to October futures widened 0.2 cent to 1.9 cents.

August $3.65 puts were the most active options in electronic trading. They were 0.6 cent higher at 2.2 cents per million Btu on volume of 884 at 3:30 p.m. Puts accounted for 52 percent of trading volume. Implied volatility for at-the-money options expiring in September was 31.61 percent at 3:30 p.m., compared with 31.49 percent yesterday.

Texas Weather

The high in Houston on Aug. 2 may be 90 degrees Fahrenheit, 3 lower than average, AccuWeather data show. Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

Tropical Storm Dorian formed today in the eastern Atlantic off the Cape Verde Islands, the National Hurricane Center said in a public advisory. About 5.8 percent of U.S. gas output comes from the Gulf of Mexico, EIA data show.

An EIA report, due at 10:30 a.m. tomorrow in Washington, may show stockpiles increased by 46 billion cubic feet in the week ended July 19, according to the median of 16 analyst estimates compiled by Bloomberg. The five-year average gain for the period is 53 billion.

Gas inventories totaled 2.745 trillion cubic feet in the week ended July 12, 1.2 percent below the five-year average and 13.1 percent below last year’s level for the period, EIA data show.

“There was a heat wave in New York last week which inspired a lot of natural gas fired power demand,” said Aaron Calder, an analyst at Gelber & Associates in Houston, in a note to clients today. Gelber predicts a storage increase of 47 billion cubic feet for last week.

Gas Production

Lower-48 state natural gas output climbed to a five-month high in April as wells were brought online in the Northeast, Texas and New Mexico, government data showed last month.

Gross gas production in the contiguous states rose 0.8 percent to 73.24 billion cubic feet a day, the most since November, from a revised 72.67 billion in March, the EIA’s monthly EIA-914 report showed June 28.

The number of rigs drilling for gas in the U.S. increased for the fourth consecutive week, rising by seven to 369 in the seven days ended July 19, the most since April 19, Baker Hughes Inc. data show. 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.

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net;

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

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