Natural Gas Futures Decline on Outlook for Ample Winter Supplies

Natural gas futures dropped in New York for the first time in four days on speculation that cold weather in the central U.S. won’t be enough to eliminate a surplus of the heating fuel.

Gas fell 0.8 percent as Commodity Weather Group LLC in Bethesda, Maryland, predicted below-average temperatures in the Midwest from Oct. 20 through Oct. 24 and normal readings on the East Coast. Gas inventories totaled 3.577 trillion cubic feet in the seven days ended Oct. 4, 1.6 percent above the five-year average, Energy Information Administration data show.

“Even if we have a cold front, we’ll have plenty of supply,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “The market is a little bit overextended and traders have been overplaying the cold weather.”

Natural gas for November delivery fell 3 cents to settle at $3.79 per million British thermal units on the New York Mercantile Exchange. Trading volume was 11 percent above the 100-day average at 2:44 p.m. Prices have advanced 13 percent this year. The futures reached $3.82 per million Btu yesterday, the highest settlement price since June 20.

The discount of November to December futures narrowed 0.1 cent to 14.5 cents. November gas traded 23.7 cents below the January contract, compared with 23.9 cents yesterday.

Goldman Recommendation

Goldman Sachs Group Inc. ended its recommendation to buy November $4.20 calls, said Samantha Dart, senior energy economist at the bank in London, in a note to clients today. The trade has lost about 30 cents since Goldman suggested it in April, the bank said in the report.

January $3.05 puts were the most active options in electronic trading. They were 0.1 cent lower at 0.6 cent per million Btu on volume of 870 at 2:44 p.m. Puts accounted for 44 percent of trading volume. Implied volatility for November at-the-money options was 31.63 percent at 2:45 p.m., compared with 31.88 percent yesterday.

Year-on-year gas production growth was 1.3 billion cubic feet a day from April to August, compared with 0.4 billion a day in the first quarter, driven by rapid increases from the Marcellus shale formation in the U.S. Northeast, Dart said in the report. The supply gains contributed to lower-than-forecast gas prices, she said.

Marketed gas output may climb 1.2 percent this year to a record 70 billion cubic feet a day, the EIA said Oct. 8 in its monthly Short-Term Energy Outlook. The agency increased its estimate from 69.91 billion a day forecast in September.

Energy Needs

The U.S. met 87 percent of its own energy needs in the first six months of 2013, on pace to be the highest annual rate since 1986, according to the EIA.

The EIA ceased operations on Oct. 11 and will remain closed for the duration of the government shutdown. Data releases, including the weekly gas inventory report, will not be published.

The low in Chicago on Oct. 20 may be 41 degrees Fahrenheit (5 Celsius), 3 less than average, according to AccuWeather Inc. in State College, Pennsylvania. The low in New York may be 49 degrees, matching the normal temperature.

About 49 percent of U.S. households use gas for heating, EIA data show.

Before it's here, it's on the Bloomberg Terminal.