Natural Gas Futures Slide on Outlook for Moderating Temperatures

Natural gas futures declined for a third day in New York as unusually hot weather this week is forecast to moderate, cutting demand from power plants.

Gas fell 0.8 percent as above-normal temperatures expected across the U.S. this week will give way to milder weather in the East next week, according to MDA Weather Services in Gaithersburg, Maryland. Gas stockpile increases topped five-year averages for three straight weeks, based on the most recent government reports.

“The problem is that while the near-term pattern of heat unfolding this week should support prices, the weather appears to be falling apart next week,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “In order for a summertime rally to take hold, the injections will need to better align with the five-year average.”

Natural gas for July delivery fell 3.2 cents to settle at $3.739 per million British thermal units on the New York Mercantile Exchange. Trading volume was 34 percent below the 100-day average for the time of day. Prices have climbed 12 percent this year.

The discount of July to October futures was unchanged at 3.3 cents.

July $3.90 calls were the most active options in electronic trading. They were 0.3 cent lower at 0.1 cent per million Btu on volume of 1,071 at 2:29 p.m. Calls accounted for 48 percent of trading volume. Implied volatility for at-the-money options expiring in August was 30.2 percent at 2:15 p.m., compared with 29.75 percent on June 21.

New York

The high temperature in New York on June 26 may be 92 degrees Fahrenheit (33 Celsius), 10 above normal, before dropping to 10 degrees lower than the usual reading at 73 degrees on July 2, according to AccuWeather Inc. in State College, Pennsylvania.

Temperatures in Dallas will reach 103 degrees on June 28, 9 above normal, before dropping to the low 80s next week, AccuWeather said.

Power plants, the biggest consumers of U.S. gas, will account for 32 percent of demand in 2013, according to the Energy Information Administration, a unit of the Energy Department in Washington.

“The cooling demand and the eager cadre of investors who see natural gas as a screaming buy are helping to give prices support,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “The rising inventories should prevail in working off the enthusiasm for a rally.”

Pivot Point

The $3.80 price level has been a pivot point for gas futures before and “it looks like it is emerging as one again,” he said.

U.S. inventories rose by 91 billion cubic feet to 2.438 trillion in the week ended June 14, above the five-year average gain for the period of 80 billion, according to the EIA. A deficit to the average narrowed to 1.9 percent from 2.4 percent the previous week. Supplies were 18.7 percent below year-earlier levels, the narrowest since March 8.

Hedge funds reduced bullish bets on U.S. natural gas contracts to a three month low, according to the Commodity Futures Trading Commission’s June 21 Commitments of Traders report. Net-long positions declined by 25,248 futures equivalents, or 6.9 percent, to 340,489 in the week ended June 18, the third consecutive weekly drop, CFTC data showed.

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