Natural Gas Drops to Seven-Week Low on Mild Weather Forecasts

Natural gas futures slid to a seven-week low in New York on speculation that moderating weather will limit demand for the heating and power-plant fuel.

Gas fell 2.5 percent as Commodity Weather Group LLC said a storm moving from the Midwest to the Northeast today will give way to milder weather in much of the country through March 26. U.S. stockpiles probably fell more than twice the normal amount last week after a blast of cold air, analyst estimates show.

“You’ve just witnessed some of the coldest weather in many, many years, but the immediate fear of not having supply because of super cold weather is going to diminish,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “As that fear diminishes, the market should trade lower.”

Natural gas for April delivery dropped 11.5 cents to $4.49 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Jan. 21. Volume for all futures traded was 19 percent below the 100-day average at 3:04 p.m. The futures are up 6.1 percent this year.

April gas traded 4.9 cents above the May contract, compared with 6.1 cents yesterday. The premium for April to October futures narrowed to 0.9 cent from 3.8 cents.

April $4.30 puts were the most active options in electronic trading. They were up 1.2 cents at 3.8 cents per million Btu on volume of 1,319 contracts at 3:07 p.m. Puts accounted for 62 percent of trading volume.

Winter Storm

The storm brought about 6 inches (15 centimeters) of snow to Chicago today, according to the National Weather Service. A blizzard warning extended from lakes Erie and Ontario through much of western New York. Rochester may get 19 inches of snow through tomorrow while Buffalo may receive 17.

The system was expected to track over New York and into southern New England during the course of the day, leaving snow on its north side and rain along its center and to the south, said Rob Carolan, owner of Hometown Forecast Services Inc. in Nashua, New Hampshire.

Below-normal temperatures will linger in the Northeast and parts of the Midwest over the next two weeks while readings revert to seasonal norms across rest of the contiguous states, according to Commodity Weather in Bethesda, Maryland.

The high in Manhattan tomorrow will drop to 28 degrees Fahrenheit (minus 2 Celsius), 20 below normal, before rising to 55 degrees, 6 above average, on March 15, AccuWeather Inc. said on its website.

About 49 percent of 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.

Energy ETFs

Investors added a net $17.55 million yesterday to U.S.- listed exchange-traded funds that invest in energy, equivalent to 0.5 percent of total assets, data compiled by Bloomberg show. Funds were unchanged at the U.S. Natural Gas Fund, the biggest gas ETF.

Gas inventories have dropped at record rates since the heating season began in November as frigid weather boosted demand. Supplies ended February at 1.196 trillion cubic feet, the lowest level for the month since 2004, government data show.

An EIA report tomorrow will probably show that stockpiles fell 200 billion cubic feet last week, based on the median of 19 analyst estimates compiled by Bloomberg. A withdrawal of that size would topple the March 1998 record of 149 billion in government data going back to 1994.

Projections ranged from declines of 180 billion to 210 billion. The five-year average withdrawal for the period is 95 billion, EIA data show.

“Sustained winter temperatures on the back of extremely reduced inventories would prove to be a very bullish combination,” said Aaron Calder, senior market analyst at Gelber & Associates in Houston.