Natural Gas Futures Decline as Forecast Show Milder Weather

Natural gas fell the most in nine months as forecasts for milder weather for much of the U.S. signaled reduced demand for the heating fuel.

Warmer-than-normal weather will blanket a large swath of the country through December 7, data from the Climate Prediction Center in College Park, Maryland, show. About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration.

“The projections for the first part of the month are bearish,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “It’s really a weather market. The anxiety level’s not high yet.”

Natural gas for December delivery fell 26.7 cents, or 6.1 percent, to settle at $4.088 per million British thermal units on the New York Mercantile Exchange, the biggest decline since Feb. 27. Volume for all futures traded was 9.5 percent below the 100-day average at 2:07 p.m. Gas dropped 4.2 percent this week and is down 3.4 percent this year. The session was shortened by 1 hour because of the U.S. Thanksgiving weekend.

The possibility of reduced demand from the above-average temperatures is trumping supply concerns, Saal said.

Inventories dropped 162 billion cubic feet in the week ended Nov. 21 to 3.432 trillion cubic feet, the Energy Department’s statistical arm said in a Nov. 26 report. The five-year average decline for the week is 6 billion. A deficit to the five-year average widened to 10.4 percent from 6.4 percent the previous week. Supplies were 9.2 percent below year-earlier inventories, compared with 5.3 percent in last week’s report.

Production Outlook

Gas output may climb 4.8 percent this year to average a record 73.79 billion cubic feet a day, the EIA said Nov. 12 in its monthly Short-Term Energy Outlook.

Production from the Marcellus shale formation in the Northeast may advance 1.3 percent in December to 16.1 billion cubic feet a day, the agency said Nov. 10 in its monthly Drilling Productivity Report.

Prices for the power plant fuel are also falling in sympathy with crude oil, said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

“It’s getting spillover from what’s happening in oil,” Flynn said.

The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world’s oil supply, said yesterday it would maintain its collective output target at 30 million barrels a day.

WTI crude has plunged 33 percent this year amid rising output from U.S. shale deposits. The decline may force companies to decide whether to shut output at U.S. shale wells that yield gas as well as oil, Flynn said.

Natural gas consumption in 2015 will ease for the first time in six years, EIA said in its Nov. 12 Short-Term Energy Outlook. Demand will slip to 73.15 billion cubic feet a day from 73.17 billion this year.

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