Natural Gas Futures Rise After Bigger-Than-Expected Supply Drop

Natural gas futures climbed from a 14-week low in New York after a government report showed a larger-than-forecast decline in U.S. stockpiles.

Gas rose 2.8 percent after the Energy Department said U.S. stockpiles fell 135 billion cubic feet last week to 3.517 trillion, exceeding the five-year average drop for the week of 111 billion. Analyst estimates compiled by Bloomberg showed an expected decline of 130 billion.

“It’s a pretty big number,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We should be supported here for a couple of days.”

Natural gas for February delivery gained 8.9 cents to settle at $3.287 per million British thermal units on the New York Mercantile Exchange. Trading volume of 230,181 contracts at 3:22 p.m. was down 25 percent from the 100-day average. The futures yesterday fell to $3.198, the lowest settlement price since Sept. 26. Gas prices have risen 6.2 percent from a year ago and dropped 5.2 percent this week.

March $2.75 puts were the most active options in electronic trading on the Nymex. They fell 1.2 cents to 1.8 cents per million Btu on volume of 1,070 lots at 3:11 p.m. February $3.50 calls rose 1.3 cents to 4.4 cents. Calls accounted for 54 percent of volume.

A gas surplus to the five-year average fell to 12.4 percent in the week ended Dec. 28 from 12.8 percent the previous week, the department said. Supplies were 0.7 percent above year-earlier levels, down from 2.3 percent.

U.S. Weather

Temperatures will be below normal in the western half of the U.S. from Jan. 13 through Jan. 17 and more seasonal in the Midwest, according to WSI Corp. in Andover, Massachusetts.

While there is a potential for milder weather in mid-January that may reduce heating demand, “there are a lot of bullish fundamentals in this market,” Aaron Calder, senior market analyst at Gelber & Associates in Houston, said in a note to clients yesterday.

Lower gas prices are spurring fuel switching from coal at electricity generators while above-normal outages at nuclear plants translate to an additional 10 billion cubic feet of gas burned a week, he said.

Output from nuclear power plants slid 63 megawatts to 94,245 megawatts today, down 3.1 percent from a year ago and the lowest level for this time of year since 2008.

Reactor maintenance shutdowns or other unplanned work may increase consumption of natural gas and coal to generate electricity.

Price Outlook

Gas futures may have a “sluggish price recovery ahead given the relative stability in domestic production and limited prospect for demand growth,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients today. She said prices may head toward $3 by the end of the month if predictions for milder weather in the eastern U.S. hold.

The number of rigs drilling for gas rose by 8 this week to 439, the most since Sept. 21, according to a Baker Hughes Inc. report today.

Gas production will rise 0.5 percent in 2013 to average 69.59 billion cubic feet a day in 2013, the department said in its Dec. 11 Short-Term Energy Outlook. Daily output rose to an all-time high of 69.22 billion cubic feet a day in 2012, up 4.5 percent from a year earlier.

Production gained as drilling technologies, such as hydraulic fracturing, or fracking, made it more economical to extract gas from shale deposits such as the Marcellus in the Northeast. The U.S. produced 83 percent of its energy in the first nine months of 2012, on track to be the highest level since 1991, department data show.

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