Natural Gas Drops for Fourth Day on Outlook for Warmer Weather

Natural gas futures declined for a fourth day in New York on forecasts of moderating temperatures that would curtail demand for the heating fuel.

Gas dropped 1.6 percent after a midday update to the National Weather Service’s Global Forecast system model showed mostly normal or warmer-than-normal weather in the lower-48 states from March 30 through April 3, followed by mild weather in the eastern half of the U.S. An earlier outlook had shown cooler readings.

“We’re seeing temperatures in the low 50s at the end of the 10-day forecast,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We haven’t been able to settle above $4 and the market is looking overbought.”

Natural gas for April delivery fell 6.2 cents to settle at $3.865 per million British thermal units on the New York Mercantile Exchange. The futures have advanced 15 percent this year. Trading volume was 4.6 percent below the 100-day average at 2:58 p.m. Prices reached $4 per million Btu on March 21 for the first time since September 2011.

The discount of April contracts to October, a gauge of summer demand for gas, was unchanged at 13 cents. The discount of October to January expanded 0.3 cent to 30.4 cents.

June $4.80 calls were the most active gas options in electronic trading. They slipped 0.9 cent to 1.3 cents per million Btu on volume of 1,471 contracts as of 2:49 p.m. Calls accounted for 62 percent of options volume. April options expired today.

Options Volatility

Implied volatility for at-the-money gas options expiring in May was 28.05 percent at 3 p.m., down from 30.88 percent on March 22. June options volatility was 28.3 percent, down from 30.56 percent.

Money managers raised net-long positions, or wagers on rising prices, in natural gas by 31 percent to 321,928 futures equivalents in the week ended March 19, according to the Commodity Futures Trading Commission’s March 22 Commitments of Traders report. It was the highest level in records dating back to January 2010.

The low in New York on April 6 may be 48 degrees Fahrenheit (9 Celsius), 6 more than average, according to AccuWeather Inc. in State College, Pennsylvania. The low in Boston may be 39 degrees, 1 higher than usual.

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

LNG Agreement

Centrica Plc, the U.K.’s largest household energy supplier, signed a 20-year deal to import natural gas from the U.S., securing supplies as production from British North Sea fields decline.

Centrica will buy 1.75 million metric tons a year of liquefied natural gas from Cheniere Energy Inc.’s Sabine Pass plant in Louisiana, the Windsor, England-based company said today. That’s equivalent to the demand of 1.8 million U.K. homes. Prices will be linked to Henry Hub, the U.S. gas benchmark, and deliveries will start in September 2018.

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.

Price Forecast

The U.S. decreased its outlook for prices in a March 12 report. Gas prices 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.

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 rose to 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.

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