Natural Gas Declines Amid Outlook for Warmer U.S. Weather

Natural gas futures fell for a third day in New York on forecasts for milder weather that would limit demand for the heating fuel.

Gas fell 0.2 percent after a midday update to the National Weather Service’s Global Forecast System model showed mostly normal temperatures in the central U.S. from March 27 through March 31, followed by average or warmer-than-usual readings in the upper Midwest through early April. Previous forecasts had shown cooler weather. Spring is a so-called shoulder season of low gas consumption.

“We’re coming into the shoulder period and prices ought to decline,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “We’ve had a little bit of wintry weather, but it’s too little, too late. Prices are definitely in the overbought category.”

Natural gas for April delivery fell 0.8 cent to settle at $3.927 per million British thermal units on the New York Mercantile Exchange. The futures have gained 17 percent this year, the best performer on the Standard & Poor’s GSCI spot index of 24 commodities. Gas was the worst performer last year. Prices rose 1.4 percent this week, the fifth consecutive gain.

Trading volume was 2.7 percent below the 100-day average at 2:55 p.m. Gas rose to $4.025 per million Btu yesterday, the highest intraday price since Sept. 15, 2011.

Options Trading

April $4 calls were the most active gas options in electronic trading. They fell 1 cent to 0.9 cent per million Btu on volume of 2,162 contracts at 3:34 p.m. Puts accounted for 45 percent of options volume.

Implied volatility for at-the-money gas options expiring in May was 30.72 percent at 2:30 p.m., down from 32.18 percent yesterday.

The low in New York on April 1 may be 42 degrees Fahrenheit (6 Celsius), 2 higher than usual, according to AccuWeather Inc.

About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration, the statistical arm of the Energy Department.

The number of rigs drilling for gas in the U.S. fell by 13 to 418 this week, according to Baker Hughes Inc. in Houston. The total is down 3 percent this year.

Gas inventories totaled 1.876 trillion cubic feet in the week ended March 15, 9.5 percent above the five-year average and 21.1 percent below last year’s total for the period. The year-on-year storage deficit was the widest since April 2008.

The U.S. decreased its outlook for prices in a March 12 report. Gas at the benchmark Henry Hub in Erath, Louisiana, will average $3.41 per million Btu this year, lower than the previous estimate of $3.53, according to the EIA’s Short-Term Energy Outlook.

Gas Demand

The forecast for total gas consumption fell to 70.02 billion cubic feet a day from 70.31 billion in the report. Rising prices will curtail gas demand from power generators, the agency said.

Gas output reached an all-time high of 28.5 trillion cubic feet in 2011, led by record output from shale deposits, the EIA said in a report Jan. 7. Shale accounted for 30 percent of total production in 2011, up from 22 percent the previous year.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84 percent of its energy needs in the first 11 months of last year, government data show. If the trend continued through 2012, it will be the highest level of self-sufficiency since 1991.

Before it's here, it's on the Bloomberg Terminal.