Natural Gas Futures Decline on Forecasts for Milder U.S. Weather

Natural gas futures dropped in New York for the first time in four days on forecasts for moderating weather that would limit demand for the power-plant fuel.

Gas slipped after MDA Weather Services in Gaithersburg, Maryland, said the weather would be cooler than average in the eastern half of the U.S. through May 26. The futures advanced to a three-week settlement high yesterday as meteorologists predicted above-normal temperatures in the contiguous 48 states.

“The market is pulling back here and taking a little bit of a breather,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “Traders are a bit skeptical about the prospect of cooling demand.”

Natural gas for June delivery fell 0.6 cent to settle at $4.186 per million British thermal units on the New York Mercantile Exchange after earlier declining at much as 0.9 percent. Prices have climbed 25 percent this year. Trading volume was 35 percent below the 100-day average at 2:57 p.m. The futures closed yesterday at $4.192 per million Btu, the highest settlement price since May 1.

The discount of June to October futures, a measure of supply expectations for the summer, narrowed 0.1 cent to 7.5 cents.

July $3.75 puts were the most active options in electronic trading, falling 0.1 cent to 1.8 cents per million Btu on volume of 610 at 2:42 p.m. Puts accounted for 42 percent of trading volume. Implied volatility for at-the-money options expiring in July was 31.28 percent at 2:45 p.m., down from 31.54 percent yesterday.

Weather Outlook

The high in New York on May 25 may be 62 degrees Fahrenheit (17 Celsius), 11 below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Cleveland may be 61, 10 lower than average.

Power generation accounts for 33 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

An EIA report scheduled for release at 10:30 a.m. tomorrow in Washington may show gas inventories rose by 92 billion cubic feet in the week ended May 17, according to the median of 10 analyst estimates compiled by Bloomberg. The five-year average gain for the week is 90 billion.

Stockpiles climbed by 75 billion during the same period last year. Inventories totaled 1.964 trillion cubic feet in the week ended May 10, 4.1 percent below the five-year average and 26 percent less than last year’s level, EIA data show.

LNG Proposal

Veresen Inc. filed an application with the U.S. Federal Energy Regulatory Commission to build a liquefied natural gas terminal on the coast of Oregon.

The Jordan Cove project would initially have the capacity to handle about 1 billion cubic feet a day, shipping gas from western Canada and the U.S. Rocky Mountains for export to Asia and other markets, Calgary-based Veresen said in a statement today.

The U.S. conditionally approved the Freeport LNG export project in Texas on May 17, the second development to receive approval from the Energy Department to send gas to countries that don’t have free-trade agreements with the U.S. The government has weighed 20 applications for export terminals in recent months, which could ship the equivalent of 41 percent of 2013 U.S. production, Energy Department data show.

U.S. gas output will rise to an all-time high for the sixth straight year as new wells come online at shale formations, such as the Marcellus in the Northeast, the EIA said May 7 in its monthly Short-Term Energy Outlook. Marketed gas production will average a record 69.9 billion cubic feet a day this year, up from 69.18 billion a day in 2012, the agency said.

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