Natural Gas Futures Tumble From Four-Year High on Milder Weather

Natural gas futures plunged in New York, declining from the highest price in almost four years, as forecasts showed mostly normal weather on the East Coast in early February.

Gas slid 6.5 percent, the most since May 2, after soaring to $5.442 per million British thermal units, the highest price since Feb. 16, 2010. Commodity Weather Group LLC in Bethesda, Maryland, said average or higher-than-usual temperatures would extend from Florida to Maine from Feb. 1 through Feb. 10 after frigid weather this week.

“The market’s collapsed after pushing up to a four-year high,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We’re going to see some volatility, with prices basically being pushed and pulled by the weather patterns.”

Natural gas for February delivery fell 33.5 cents to settle at $4.847 per million British thermal units on the New York Mercantile Exchange. Trading volume was 81 percent above the 100-day average at 2:43 p.m. The futures are up 15 percent this month.

The February contract expires on Jan. 29. The more active March gas futures tumbled 32.4 cents, or 6.5 percent, to settle at $4.674 per million Btu.

The premium of February to March futures narrowed 1.1 cents to 17.3 cents. March gas traded 38.8 cents above the April contract, compared with 57.7 cents on Jan. 24.

March $6 calls were the most active options in electronic trading. They were 11.3 cents lower at 13.3 cents per million Btu on volume of 3,136 at 3:06 p.m. Calls accounted for 66 percent of trading volume.

Regional Hubs

Spot gas for next-day delivery to consumers in Boston and New York rose today. Prices at Algonquin City Gates, which includes Boston and other New England deliveries, gained 60 percent to $73.296 per million Btu on the IntercontinentalExchange. Gas on Williams Co.’s Transco Zone 6 hub for New York City surged 52 percent to $91.2644.

Hedge funds were the most bullish on U.S. natural gas since at least 2006 after a freeze caused soaring prices for the heating fuel.

Speculators increased their net-long position, or wagers on rising prices, in New York Mercantile Exchange futures by 21 percent in the week ended Jan. 21, according to U.S. Commodity Futures Trading Commission data that begins in 2006. A wider measure that includes three contracts tied to Henry Hub, the delivery point for Nymex futures, reached a one-month high.

Margin Increase

CME Group Inc., which owns Nymex, increased margins for speculators holding front-month natural gas futures contracts to $3,300 per contract from $2,750, the exchange said in a Jan. 24 notice. The new margins will take effect after the close of business today.

The exchange on Jan. 24 raised initial margins for speculators on those contracts to $2,750 from $2,530.

The low in New York on Feb. 5 may be 34 degrees Fahrenheit (1 Celsius), 6 above normal, according to AccuWeather Inc. in State College, Pennsylvania. Washington’s low may be 33 degrees, 4 higher than average.

“The moderation we’re seeing in the weather forecast, we’re getting a 50-degree day here in New York before long, seemed to pull the plug on natural gas and precipitated a selloff,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.

Price Outlook

About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.

Futures may drop to about $4.50 per million cubic feet ($4.40 per million Btu) this summer “as storage aggressively refills,” Brandon Blossman, an analyst at Tudor, Pickering, Holt & Co. in Houston, said in a note to clients today. Gas may slump below $3 by 2016 as supply outpaces demand, Blossman said.

The EIA raised its estimate for 2014 gas production to 71.66 billion cubic feet a day from last month’s forecast of 71.43 billion, according to the Jan. 7 Short-Term Energy Outlook. Supplies may rise 2.1 percent from last year.

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