Aug. 5 (Bloomberg) -- Natural gas declined in New York to the lowest price in more than five months as the outlook for unusually mild weather signaled reduced demand for the power-plant fuel.
The futures fell 0.8 percent on forecasts that the Northeast and Midwest will see below-normal temperatures from Aug. 10 through Aug. 19, according to Commodity Weather Group LLC in Bethesda, Maryland. Prices have erased all of this year’s gains as U.S. stockpile increases topped five-year averages in seven of the past nine weekly government reports.
“We are not seeing strong heat,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The making for a turnaround seems to be a little elusive right now. The market has priced in disappointing weather.”
Natural gas for September delivery slid 2.8 cents to $3.319 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Feb. 22. Trading was 45 percent below the 100-day average at 2:46 p.m. Gas has fallen 1 percent this year.
The discount of September to October futures narrowed 0.1 cent to 2.7 cents.
February $4.50 calls were the most active options in electronic trading. They were down 0.1 cent at 8.5 cents per million Btu on volume of 4,000 at 2:48 p.m. Calls accounted for 79 percent of trading volume. Implied volatility for at-the-money options expiring in September was 31.91 percent at 2:45 p.m., compared with 30.86 percent on Aug. 2.
“Calls that far out of the money are usually speculative bets or a hedge just to put a cap on pricing,” said Aaron Calder, senior market analyst at Gelber & Associates in Houston. “It looks like there is interest on both sides of the trade,” otherwise prices would have fallen further, based on the volume, he said.
The high temperature in Chicago on Aug. 15 may be 72 degrees Fahrenheit (22 Celsius), 10 below normal, and Washington’s reading may be 2 lower than the average at 85 degrees, according to AccuWeather Inc. in State College, Pennsylvania.
“The weather has turned into a bust for the bulls,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “The clock is running out fast on the ability of the summer season to produce a sustained blast of successive heat waves. Look for prices to fall further, as the bearish elements pile up.”
Electricity generators, the largest consumers of U.S. gas, will account for 32 percent of demand this year, data show from the Energy Information Administration, the Energy Department’s statistical arm.
The drop in gas prices may spur demand from power plants as the fuel becomes more competitive versus coal, Calder said.
“There isn’t that much cooling demand because it’s really mild so natural gas and coal are competing for a shrinking pie,” he said. It lowers the floor for natural gas.”
Central Appalachian coal for September delivery fell 37 cents, or 0.7 percent, to $52.63 a ton on the Nymex on Aug. 2, the lowest price since Sept. 24. The price is equivalent to about $3.50 per million Btu of gas, when factoring in fuel efficiency and coal transportation costs, Calder said.
Gas inventories rose 59 billion cubic feet to 2.845 trillion in the week ended July 26, above the five-year average injection of 47 billion for the period, the EIA said last week. A deficit to five-year average supplies narrowed to 1.2 percent from 1.6 percent the previous week.
U.S. marketed gas production, which doesn’t include amounts flared or used to pressure wells, will climb 1.1 percent this year to a record 69.96 billion cubic feet a day from 2012, according to the EIA’s July 9 Short-Term Energy Outlook.
Hedge funds decreased net-long positions, or wagers on rising gas prices, by 28,775 futures equivalents, or 9.7 percent, to 268,828 in the seven days ended July 30, according to the Commodity Futures Trading Commission’s Aug. 2 Commitments of Traders report. It was the largest percentage drop since June 11 and the eighth decline in nine weeks.
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