Natural Gas Drops to 11-Week Low on Moderating November Weather

Nov. 5 (Bloomberg) -- Natural gas futures slid to an eleven-week low in New York on forecasts for mild mid-November weather that would curtail demand for the heating fuel.

Gas dropped as much as 1.9 percent. WSI Corp. in Andover, Massachusetts, said temperatures would be above normal in the eastern two-thirds of the U.S. from Nov. 15 through Nov. 19. The low in New York on Nov. 17 may be 43 degrees Fahrenheit (6 Celsius), 2 more than average, according to AccuWeather Inc. in State College, Pennsylvania.

“The forecasts are getting warmer and that’s giving the market some bearish momentum,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “The demand side of the equation really has not been there.”

Natural gas for December delivery fell 2.9 cents, or 0.8 percent, to $3.416 per million British thermal units at 9:15 a.m. on the New York Mercantile Exchange. Trading volume was 39 percent above the average for the time of day. Prices are down 3.9 percent from a year ago. The futures dropped to $3.379 per million Btu in intraday trading, the lowest price since Aug. 16.

The discount of December to January futures, the most actively traded gas spread, widened 0.3 cent to 8.2 cents. March gas traded 0.6 cent above the April contract, compared with 0.7 cent yesterday.

December $3.30 puts were the most active options in electronic trading. They were 0.7 cent higher at 5.7 cents per million Btu on volume of 268 at 9:34 a.m. Puts accounted for 70 percent of trading volume. Implied volatility for December at-the-money options was 33.37 percent at 9:30 a.m., compared with 32.68 percent yesterday.

Heating Needs

The low in Cincinnati on Nov. 17 may be 35 degrees Fahrenheit, 1 above average, AccuWeather data show. About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.

An EIA report scheduled for release Nov. 7 may show gas stockpiles rose by 38 billion cubic feet in the week ended Nov. 1, according to the median of three analyst estimates compiled by Bloomberg. The five-year average gain for the week is 36 billion. Supplies climbed by 27 billion a year earlier.

Gas inventories totaled 3.779 trillion cubic feet in the week ended Oct. 25, EIA data show. Supplies were 1.6 percent above the five-year average and 3.1 percent below year-earlier stockpiles.

The Marcellus shale formation is driving gas production growth in the U.S., the EIA said Oct. 22 in the first edition of its Drilling Productivity Report. Output from the region may increase by 408 million cubic feet per day, or 3.3 percent, to 12.6 billion from October to November, according to the report.

Marketed gas production may climb 1.2 percent this year to a record 70 billion cubic feet a day, the EIA said Oct. 8 in its monthly Short-Term Energy Outlook.

The U.S. met 86 percent of its own energy needs in the first seven months of 2013, on pace to be the highest annual rate since 1986, according to the EIA.

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