Natural Gas Drops to 12-Week Low on Milder Weather Outlook

Natural gas futures dropped to a 12-week low in New York as forecasts for milder weather in the eastern U.S. signaled lower consumption.

Gas slipped 0.7 percent after midday government models showed cooler weather, easing expected demand for the fuel from power plants. The futures declined 3.9 percent last week as mild weather cut fuel use and a government report showed a larger-than-average supply increase.

“I’m seeing cooler weather on tap for the Northeast and West Coast; that kind of departure is bearish for prices,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “We had two hot summers in a row so even a normal summer is going to feel bearish. Storage injections are going to be much larger this June than last June because of milder weather.”

Natural gas for July delivery fell 2.8 cents to $3.80 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since March 13. Trading volume was 4.8 percent below the 100-day average for the time of day at 2:49 p.m. The futures are up 13 percent this year.

The discount of July to October futures widened 0.2 cent to 4 cents from June 7.

July $3.80 puts were the most active options in electronic trading. They rose 1 cent to 9 cents per million Btu on volume of 1,166 at 3:11 p.m. Puts accounted for 58 percent of trading volume. Implied volatility for at-the-money options expiring in July was 29.56 percent at 3 p.m., compared with 27.59 percent on June 7.

Chicago Weather

The high temperature in Chicago on June 18 may be 71 degrees Fahrenheit (22 Celsius), 10 lower than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. New York City’s high on June 20 may be 6 below normal at 80 degrees.

Power plants, the largest U.S. consumer of natural gas, will account for 32 percent of demand in 2013, Energy Information Administration data show.

Gas stockpiles expanded by 111 billion cubic feet to 2.252 trillion in the week ended May 31, above the five-year gain of 92 billion for the period, the EIA, the Energy Department’s statistical arm, said last week.

U.S. inventories were 3 percent below the five-year average for the week, the smallest deficit to the average since March 29. A deficit to year-earlier levels narrowed for the eighth straight week, reaching 21.5 percent from 23.7 percent.

Inventory Outlook

Gas supplies may climb to 3.78 trillion cubic feet by Nov. 1 as production continues to grow while higher gas prices prompt some electricity generators to use coal instead, Bill Herbert, an analyst with Simmons & Co., said in a note to client today.

The EIA estimates that U.S. marketed gas production in 2013 will set a record for the sixth straight year, climbing 1 percent to 69.9 billion cubic feet a day, according to its May 7 Short-Term Energy Outlook.

Hedge funds slashed bullish natural gas bets by the most in five months in the seven days ended June 4, according to the Commodity Futures Trading Commission’s June 7 Commitment of Traders Report.

Net-long positions on four U.S. natural gas contracts retreated by 32,731 futures equivalents, or 7.4 percent, to 412,452, CFTC data show. The measure climbed in April to the most records dating back to January 2012.

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