Natural Gas Drops to Three-Month Low as Mild Weather to Cut Use

Natural gas futures declined to a three-month low in New York on forecasts of milder weather that would cut demand for the heating fuel.

Gas dropped 1.1 percent after MDA Weather Services in Gaithersburg, Maryland, predicted above-normal temperatures in the eastern half of the U.S. from Jan. 8 through Jan. 12. The low in Chicago on Jan. 10 may be 28 degrees Fahrenheit (minus 2 Celsius), 10 higher than usual, according to AccuWeather Inc. in State College, Pennsylvania.

“The forecasts are starting to warm up quite a bit,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We aren’t really seeing the type of cold weather you’d expect for this time of year.”

Natural gas for February delivery fell 3.5 cents to $3.198 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Sept. 26. The futures are up 6.8 percent from a year ago. Trading volume was 214,363 at 2:39 p.m., down 27 percent from the 100-day average.

Gas slid to $3.05 in yesterday’s session, the lowest intraday price since Sept. 28, before rebounding. The futures have tumbled 19 percent since rising to a one-year intraday high of $3.933 on Nov. 23.

February $3.60 calls were the most active gas options in electronic trading. They were 0.7 cent lower at 1.8 cents on volume of 919 contracts as of 2:42 p.m. Calls accounted for 56 percent of options volume.

Last year will probably overtake 1998 to become the warmest year on record in the U.S., the National Oceanic and Atmospheric Administration said in a monthly climate report.

Record Year

The first 11 months were the warmest start to any year in the contiguous states since the nation began keeping records in 1895, NOAA’s Climatic Data Center said Dec. 6.

U.S. gas inventories dropped by 130 billion cubic feet in the seven days ended Dec. 28, according to the median of 12 analyst estimates compiled by Bloomberg. The five-year average decline for the period is 111 billion, Energy Department data show. Last year, supplies fell by 77 billion during that week. The department’s weekly storage report is scheduled to be released tomorrow.

Stockpiles totaled 3.652 trillion cubic feet in the week ended Dec. 21, a record for that time of the year, the department said last week. Supplies were 12.8 percent above the five-year average for the seven-day period, up from 4.6 percent at the end of November. The surplus had risen to 61 percent at the end of March.

Record Stockpiles

Inventory levels reached an all-time high of 3.929 trillion cubic feet during the week ended Nov. 2.

Natural gas may gain more than 20 percent to average $3.70 per million Btu this year, Ric Deverell, head of commodities research at Credit Suisse in London, said in a note to clients today.

“We still hold the view that prices generally improve through 2013 as the U.S. storage surplus shrinks further and production begins to fall,” Deverell said.

U.S. gas output may rise 0.5 percent in 2013 to 69.59 billion a day, the department said Dec. 11 in its monthly Short-Term Energy Outlook.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.68 per million Btu this year, according to the report from the department’s Energy Information Administration.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first nine months of last year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.