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Natural Gas Declines as Milder U.S. Weather Reduces Fuel Use

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Sept. 20 (Bloomberg) -- Natural gas futures fell for the second time this week in New York on the outlook for milder weather that may limit demand for the power-plant fuel.

Gas slid 0.9 percent as forecasts showed that above-normal temperatures in the central U.S. next week will give way to seasonal readings across most of the country Sept. 30 through Oct. 4, according to Commodity Weather Group LLC in Bethesda, Maryland. A stockpile gain last week was a record low for the time of year after a surge of hot weather.

“The heat really has subsided,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The expectations are that we are probably looking at some pretty stout injections ahead and that will likely pressure prices slightly lower.”

Natural gas for October delivery fell 3.3 cents to $3.687 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Sept. 13. Trading was 20 percent below the 100-day average at 2:37 p.m. Prices rose 0.3 percent this week, capping the fifth gain in six weeks, and are up 10 percent this year.

The discount of October to November futures widened 0.1 cent to 7.6 cents. October gas traded 33.7 cents below the January contract, compared with 33 cents yesterday.

October $3.60 puts were the most active options in electronic trading. They were 0.1 cent higher at 1.6 cents per million Btu on volume of 292 at 3:02 p.m. Puts accounted for 57 percent of trading volume. Implied volatility for November at-the-money options was 29.27 percent at 3 p.m., compared with 29.49 percent yesterday.

Mild Weather

The high in Philadelphia on Sept. 23 may be 70 degrees Fahrenheit (21 Celsius), 5 lower than average, according to AccuWeather Inc. in State College, Pennsylvania. The high in Houston will be 92 degrees on Sept. 24, 5 above normal, before dropping to seasonal readings of 85 at the beginning of October.

Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

“Despite our somewhat bullish bias, the fundamental factors continue to work against the bull case,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “There are still no storms of consequence threatening Gulf of Mexico production. Fall officially arrives this weekend, and that ushers the second shoulder season of the year.”

The National Hurricane Center said a low-pressure system over the southwestern Gulf of Mexico has a 20 percent chance of turning into a tropical cyclone in the next two days. The storm is about 100 miles (161 kilometers) northeast of Tampico, Mexico, the center said.

A disorganized system of cloudiness and showers located a few hundred miles south of Bermuda has a 20 percent chance of strengthening in the two days, the center said.

Tropical Weather

Storms in Gulf waters are closely watched for potential disruptions to offshore production. The Gulf will account for 5.6 percent of U.S. gas output this year, EIA data show.

U.S. gas inventories expanded by 46 billion cubic feet to 3.299 trillion in the week ended Sept. 13, below the five-year average gain of 74 billion for the period, the EIA said yesterday. It was the smallest injection into storage for the time of year in EIA data going back to 1994. A supply surplus to the five-year average narrowed to 0.5 percent from 1.4 percent the previous week, the smallest since July.

Gas Rigs

The gas-rig count fell by 15 this week to 386, the biggest drop since the seven days ended March 29, Baker Hughes Inc. data today showed. The rig count has dropped 10 percent this year.

Increased efficiency in directional drilling and hydraulic fracturing, or fracking, makes it economical to tap gas trapped in shale formations, such as the Marcellus in the Northeast. Output is growing even as conventional dry-gas drilling hovers near the lowest level in 18 years.

Total U.S. marketed gas output may increase by 1.1 percent this year to a record 69.91 billion cubic feet a day, the EIA said in its Sept. 10 Short-Term Energy Outlook.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

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

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