Natural Gas Drops to 5-Month Low on Above-Forecast Supply Gain

Natural gas futures slid to the lowest price in more than five months in New York after U.S. stockpiles increased more than forecast last week.

Gas dropped 1.7 percent after the Energy Information Administration said supplies rose 59 billion cubic feet in the week ended July 26 to 2.845 trillion. Analyst estimates compiled by Bloomberg showed a gain of 56 billion. Commodity Weather Group LLC said the weather may be mostly cooler than average in the eastern two-thirds of the U.S. through Aug. 15.

“The number was just a touch above expectations and we have a few bearish factors weighing down the market,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “We’re on track for a mild August. The summer has not panned out in terms of cooling demand.”

Natural gas for September delivery fell 5.9 cents to settle at $3.387 per million British thermal units on the New York Mercantile Exchange, the lowest closing price since Feb. 22. Volume was 6.8 percent below the 100-day average at 2:46 p.m. The futures have gained 1.1 percent this year.

The discount of September to October futures widened 0.3 cent to 2.8 cents.

September $3.75 calls were the most active options in electronic trading. They were 1.2 cents lower at 1.6 cents per million Btu on volume of 1,488 at 2:50 p.m. Calls accounted for 48 percent of trading volume. Implied volatility for at-the-money options expiring in September was 31.04 percent at 2:45 p.m., compared with 32.51 percent yesterday.

Average Gains

The stockpile increase was bigger than the five-year average gain for the week of 47 billion cubic feet, department data show. A deficit to the five-year average narrowed to 1.2 percent from 1.6 percent the previous week. Supplies were 11.5 percent below year-earlier inventories, compared with 12.5 percent in last week’s report.

The high in New York on Aug. 8 may be 80 degrees Fahrenheit (27 Celsius), 4 lower than usual, according to AccuWeather Inc. in State College, Pennsylvania. The high in Chicago that day may be 77 degrees, 6 less than average, AccuWeather data show.

Power generation accounts for 32 percent of U.S. gas demand, according to the EIA, the Energy Department’s statistical arm.

Proved reserves of wet natural gas rose by 31.2 trillion cubic feet in 2011 to a record 348.8 trillion cubic feet, the EIA said today on its website.

Proved Reserves

“Horizontal drilling and hydraulic fracturing in shale and other ‘tight’ (very low permeability) formations continued to drive record increases in proved oil and lease condensate and natural gas reserves in 2011,” the EIA said.

Lower-48-state natural gas output was little changed in May as new wells began operating in the Northeast’s Marcellus shale formation while Wyoming production declined during scheduled maintenance, the EIA said yesterday.

Production in the contiguous states totaled 73.37 billion cubic feet a day, compared with a revised 73.38 billion in April, according to the agency’s monthly EIA-914 report.

The U.S. met 87 percent of its own energy needs in the first four months of 2013, on pace to be the highest annual rate since 1985, EIA data show.

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