Natural gas fell by the most in eight months, trimming the biggest annual increase since 2005, as forecasts for moderating cold signaled reduced demand for heating fuels after frigid weather this week.
The futures fell 4.4 percent, the biggest one-day drop since May 2, as forecasters including MDA Weather Services predicted above-normal East Coast temperatures from Jan. 10 through Jan. 14. Gas surged 26 percent this year, the biggest gainer in the Standard & Poor’s GSCI gauge of 24 commodities, as a U.S. stockpile deficit widened during the coldest start to winter in 13 years.
“The bar for cold weather is set pretty high, so if you don’t get that type of weather, or colder, then the market is going to pull back a little bit,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “I did see big spurts of volume coming in on the sell side. They could have gotten out of their long positions at the end of the year. It could be book-balancing and the next day we could see a rally.”
Natural gas for February delivery dropped 19.7 cents to $4.23 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Dec. 6. Trading volume was 24 percent below the 100-day average at 2:42 p.m. Gas climbed 19 percent since the end of September, the first quarterly gain since March, and rose 7 percent this month.
The market will be closed tomorrow for the New Year’s holiday.
The premium for February contracts versus March narrowed 0.8 cent to 3.7 cents. March gas traded 8.8 cents above the April contract, compared with 14.1 cents yesterday.
March $4.75 calls were the most active options in electronic trading. They were 6.1 cents lower at 9.3 cents per million Btu on volume of 996 at 3:27 p.m. Calls accounted for 61 percent of trading volume.
The eastern half of the U.S. will see below-normal temperatures over the next five days before frigid air sends readings even lower in the central states from Jan. 5 through Jan. 9, said MDA in Gaithersburg, Maryland. Forecasts for the following five days show the cold retreating, pushing temperatures above normal from the Northeast to Texas.
The low in New York City on Jan. 3 will be 5 degrees Fahrenheit (minus 15 Celsius), 23 below normal, before climbing to 34 degrees, 7 higher than usual, a week later, according to AccuWeather Inc. in State College, Pennsylvania.
About 49 percent of U.S. households use gas for heating with the biggest consumers in the Midwest, Energy Information Administration data show. The heating season from November through March is the peak demand period for the fuel in the lower 48 states.
The number of heating-degree days, a measurement of gas demand factoring in population, will total 1,514 from November through December, up 15 percent from the same time last year, data show from Commodity Weather Group LLC in Bethesda, Maryland. The U.S. experienced its coldest start to the heating season since 2000, Matt Rogers, president of Commodity Weather, said in an e-mail yesterday.
Gas stockpiles fell by 124 billion cubic feet in the week ended Dec. 27, based on eight analyst estimates compiled by Bloomberg. Estimates ranged from declines of 103 billion to 143 billion. Supplies dropped 126 billion the same time last year and the five-year average decline for the week is 121 billion.
Inventories have fallen at almost twice the normal pace in the first six weeks of the heating season, tumbling 763 billion cubic feet to 3.071 trillion as of Dec. 20, EIA data show. A deficit to the five-year average widened to a record 9.2 percent from a surplus of 1.5 percent at the start of November.
Money managers raised net-long positions, or bets on rising prices, on natural gas by 40,447 futures equivalents, or 11 percent, to 401,875 in the week ended Dec. 24, the most since June 4, U.S. Commodity Futures Trading Commission data show. Bearish bets slid by 21,977 while long positions gained 18,471.
“The natural gas market has come under selling pressure in what looks like a wave of profit-taking ahead of year-end” and after the CFTC report showed the largest amount of long positions in six months, Tim Evans, an energy analyst at Citi Futures in New York, wrote in a note to clients today.
U.S. gas production expanded in 2013 for the sixth consecutive year as drilling technologies such as hydraulic fracturing, or fracking, made it more economical to crack shale rock to extract fuel. Marketed gas output will rise 1.8 percent this year to average a record 70.45 billion cubic feet a day, the EIA said in its Dec. 10 Short-Term Energy Outlook.
The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, government data show.