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Natural Gas Gains on Buy Signals From Drop to 8-Month Low

Natural gas futures slid for the fifth straight day in New York, reaching an eight-month low, on speculation that mild U.S. weather will bolster inventory gains.

A cold front from Canada will push temperatures below normal across the central and eastern U.S. from July 28 through Aug. 1, according to MDA Weather Services. A government report tomorrow may show that stockpiles expanded by more than the five-year average for the 14th consecutive week, based on analyst estimates compiled by Bloomberg.

“Because of these sustained big injections we’ve had constantly, it’s eroded some of the fear about having enough gas going into next winter,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “The biggest sellers have been the speculators getting out of their net-long positions.”

Natural gas for August delivery fell 1 cent, or 0.3 percent, to $3.762 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Nov. 21. Volume for all futures traded was 17 percent below the 100-day average at 2:32 p.m. Prices are down 11 percent this year.

Forecasts for the lower 48 states turned cooler for the next two weeks compared with earlier projections, said MDA in Gaithersburg, Maryland. Below-normal temperatures will linger from the Midwest to Texas during the first five days of August while warmer weather moves into the Northeast.

Lower Highs

The high temperature in Dallas on July 31 will be 85 degrees Fahrenheit (29 Celsius), 12 below normal, said AccuWeather Inc. in State College, Pennsylvania. Chicago’s reading will be 8 lower than average at 75.

Gas inventories probably rose 96 billion cubic feet in the week ended July 18, according to the median of 16 analyst estimates compiled by Bloomberg. Estimates ranged from increases of 89 billion to 104 billion. The five-year average gain for the seven days is 46 billion. The Energy Information Administration is scheduled to release its weekly gas supply report tomorrow.

“Light air-conditioning demand this month has enabled the industry to maintain the sort of restocking pace more typical of the low-demand shoulder periods of the season,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients today.

The current weather outlook suggests the next three storage reports “will likely rival or exceed the all-time records” for those weeks, she said. The storage injection record for last week is 97 billion cubic feet, she said.

Record Gains

Stockpiles totaled 2.129 trillion in the week ended July 11, 26 percent below the five-year average for the period, EIA data show. The supply deficit narrowed from a record 55 percent in March.

Supplies will reach 3.431 trillion by the end of October as production expands for the ninth consecutive year, driven by gains at the Marcellus shale deposit in the Northeast, the EIA said in its July 8 Short-Term Energy Outlook. Marketed gas output will rise 4.1 percent to a record 73.08 billion cubic feet a day.

Money managers cut net-long gas positions in 11 of the past 12 weeks as unusually mild weather crimped demand from power plants and sent prices down 39 percent from a high in February.

Net-long positions in gas in the week ended July 15 dropped to 226,861 futures equivalents, down 49 percent from a 10 month high in February, a Commodity Futures Trading Commission report July 18 showed. It was the lowest level since Dec. 3. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.

The relative strength index, a technical indicator based on price momentum, fell to 20.8 at 2:36 p.m., the least since January 2012. A number below 30 is seen as a buy signal by some traders.

“It’s severely oversold and some of the people who trade the market technically will be skittish. You are below the psychological number of $4,” Saal said.

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