Natural Gas Steady at Five-Month Low on Mixed Weather Outlook

Natural gas futures were little changed at a five-month low in New York as weather forecasts signaled steady U.S. demand from power plants.

Gas fell less than 1 percent after moving between gains and losses throughout the day, as Commodity Weather Group LLC predicted above-normal temperatures across most of Texas through Aug. 20 while the Northeast and the Midwest will see milder readings. Gas has tumbled 25 percent from a 21-month high on May 1 as moderate summer heat contributed to unusually large U.S. stockpile gains.

“There is nothing to inspire prices higher from a fundamental standpoint,” said Martin King, an analyst with FirstEnergy Capital Corp in Calgary. “For a relatively small move, this is kind of a technical play. People are searching around for a bottom and maybe it’s roughly around these levels.”

Natural gas for September delivery slipped 0.1 cent to $3.318 per million British thermal units on the New York Mercantile Exchange, the lowest closing price since Feb. 22. Trading volume was 41 percent below the 100-day average at 2:44 p.m. Prices have declined 1 percent this year.

The high in Dallas on Aug. 19 may be 102 degrees Fahrenheit (39 Celsius), 5 more than average, according to AccuWeather Inc. in State College, Pennsylvania.

“Texas is the only show in town for exceptional heat,” Matt Rogers, president of Bethesda, Maryland-based CWG, said today in a note to clients. Temperatures in the Northeast and Midwest may be 3 to 5 degrees below normal from Aug. 11 to Aug. 20, he said.

Power Plants

Texas was the largest consumer of natural gas for generating electricity during the first five months of 2013, accounting for 17 percent of U.S. demand, according to the Energy Information Administration.

Electricity generators, the largest users of U.S. gas, will account for 32 percent of gas demand this year, data show from the EIA, the Energy Department’s statistical arm.

“The cooler nights of late August get into the minds of traders about what lies ahead,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “It might not be a bad idea to acquire some length in the back of the market, ahead of the rush of winter.”

Gas inventories probably expanded by 76 billion cubic feet last week, based on the median of seven analyst estimates compiled by Bloomberg. Estimates ranged from increases of 64 billion to 85 billion. Supplies rose by 25 billion cubic feet the same time last year and the five-year average gain for the period is 42 billion, EIA data show.

Inventory Levels

U.S. stockpiles totaled 2.845 trillion cubic feet in the week ended July 26, 1.2 percent below the five-year average for the seven days. Supplies were 11.5 percent below year-earlier levels.

The inventory deficit versus year-earlier levels has narrowed over the last three months and the gap will “narrow further with natural gas stocks about 130 billion cubic feet, or 3 percent, lower by the start of the new heating season on Nov. 1,” Adam Sieminski, the administrator of the EIA, said in a statement today.

The amount of gas in storage will peak at 3.8 trillion cubic feet by the end of October, revised down from a previous estimate of 3.807 trillion, the EIA said today in its Short-Term Energy Outlook.

Production Estimate

The government cut its 2013 gas production estimate by 0.1 percent to an average of 69.89 billion cubic feet a day from 69.96 billion in last month’s report. The EIA expects gas prices this year to average $3.71 per million Btu, down from $3.76.

The discount of September to October futures narrowed 0.2 cent to 2.5 cents.

September $3 puts were the most active options in electronic trading. They down 0.1 cent to 1.3 cents per million Btu on volume of 234 at 3:15 p.m. Puts accounted for 59 percent of trading volume. Implied volatility for at-the-money options expiring in September was 32.40 percent at 3 p.m., compared with 31.88 percent yesterday.

After the recent selloff in gas, short sellers covering bearish bets may spur a price rebound this week, said John Woods, president of JJ Woods Associates and a Nymex floor trader.

There is “very, very good support” for gas in the low $3.30 area, he said. “As soon as you start to see some sort of correction, everybody jumps on it. I’m looking at $3.50, $3.55 by the end of the week.”

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