March 11 (Bloomberg) -- Natural gas futures fell in New York as moderating weather cuts demand for the heating fuel.
Gas slid 1 percent as Commodity Weather Group LLC predicted seasonal readings across most of the lower 48 states from March 21 through March 25 after below-normal temperatures in the East next week. Waves of arctic air sent inventories of the heating fuel at the end of February to the lowest level for the month in 10 years, government data show.
“We are beginning to see heating demand deteriorate,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “You have a tug of war between strong winter fundamentals that are now coming to an end and what appears to be an industry poised for record restocking.”
Natural gas for April delivery fell 4.6 cents to settle at $4.605 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 42 percent below the 100-day average at 3:28 p.m. The futures are up 8.9 percent this year.
April gas traded 6.1 cents above the May contract, compared with 7.5 cents yesterday. The premium for April to October futures narrowed to 3.8 cents at 2:45 p.m. from 4.9 cents.
April $4.50 puts were the most active options in electronic trading. They were up 0.3 cent at 7.7 cents per million Btu on volume of 629 contracts at 3:30 p.m. Puts accounted for 49 percent of trading volume.
Price volatility dropped this month as the peak U.S. heating-demand months ended. The swing from today’s high and low prices was 11.1 cents, the least since Jan. 14. The average intraday range so far this year is 18.1 cents after it widened to 42.9 cents in February.
After the surge in volatility last month, gas is entering into a market with a floor at around $4.25 and a high of about $4.75, Viswanath said. “This tells me the market, after the fireworks in February, is having a bit of a hard time finding a direction.”
Investors removed a net $61.6 million yesterday from U.S.- listed exchange-traded funds that invest in energy, equivalent to 1.7 percent of total assets, data compiled by Bloomberg show. They pulled $38.6 million from the United States Natural Gas Fund, the biggest gas ETF.
Unusually cold air will linger in parts of the Midwest and Northeast over the next two weeks while the rest of the contiguous states warm up, according to Commodity Weather in Bethesda, Maryland.
A late winter storm may drop 8 inches (20 centimeters) of snow on Chicago starting tonight, according to the National Weather Service. As the storm moves east, northern New York and New England may pick up 8 to 14 inches, with some areas getting as much as 20 inches, said Rob Carolan, owner of Hometown Forecast Services Inc. in Nashua, New Hampshire.
The low in Chicago tomorrow will drop to 9 degrees Fahrenheit (minus 13 Celsius), 21 below normal, before rising to 42 degrees, 8 higher than average, on March 25, according to AccuWeather Inc. in State College, Pennsylvania.
About 49 percent of the U.S. households use gas for heating, led by the Midwest, data show from the U.S. Energy Information Administration, the statistical arm of the Energy Department.
“The position and tilt of the earth relative to the sun is working against Old Man Winter and the polar vortex,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. Prices may make another run at $5 on “supportive” inventory data later this week, he said.
Gas stockpiles probably fell by 191 billion cubic feet in the week ended March 7, Kilduff said. Tim Evans, an energy analyst at Citi Futures in New York, is projecting a decline of 185 billion, according to a note to clients today. The five-year average withdrawal for the period is 95 billion, EIA data show. Supplies dropped 145 billion the same week last year.
U.S. inventories ended February at 1.196 trillion cubic feet, the lowest level for the time of the year since 2004, according to the EIA. The stockpile deficit to five-year average widened to a record 38.8 percent.
The EIA reduced its estimates for gas inventories at the end of March as frigid winter weather boosted demand. Storage levels will drop to 965 billion cubic feet, ending the peak heating-demand season at the lowest level since 2003, the agency said in its monthly Short-Term Energy Outlook, released today. The forecast was cut from 1.331 trillion in last month’s report.
Gas will need to average $4.44 per million Btu this year to “enable a record-high stock build” April through October, the EIA said. The estimate was raised from $4.17 in last month’s report. Supplies at the end of October were projected at 3.459 trillion cubic feet, which would be the least for the period since 2008, according to the report.
“EIA expects growing natural gas production and moderate gas demand from the electric power sector will allow for a record build in natural gas stocks,” Adam Sieminski, administrator of the EIA, said in an e-mailed statement.
Marketed output will increase 2.5 percent this year to average a record 71.96 billion cubic feet a day amid “rapid natural gas production growth” in the Marcellus shale formation in the Northeast, and as drilling picks up at Gulf Coast deposits such as the Haynesville and Barnett, the EIA said. The estimate was revised from 71.76 billion last month.
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