Natural Gas Falls to Two-Year Low With No Cold in Sight

Natural gas futures tumbled to a two-year low in New York as mild weather and record production threatened to expand a stockpile surplus.

Futures slumped 9 percent to the lowest settlement since Jan. 9, 2013, making the fuel the worst performer among 22 materials in the Bloomberg Commodity Index. Gas stockpiles totaled 3.295 trillion cubic feet as of Dec. 12, 47 billion more than a year earlier and above the year-ago level for the first time since 2012, government data showed. The surplus will “balloon to just shy of 200 billion cubic feet” by the start of 2015, according to JPMorgan Chase & Co.

Temperatures may be above normal in most of the lower 48 states through Dec. 26 and on the East Coast through Dec. 31, according to Commodity Weather Group LLC in Bethesda, Maryland.

“The hope of cold weather boosting inventory withdrawals is receding, and that’s opened up a floor in gas prices,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The weather models are generally less supportive for the persistence of cold.”

Natural gas for January delivery fell 32 cents to settle at $3.144 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 59 percent above the 100-day average at 2:41 p.m. Prices have dropped 26 percent this year, heading for the biggest annual loss since 2011.

‘Downside Risk’

U.S. gas production may climb 5.5 percent this year to a record 74.26 billion cubic feet a day, Energy Information Administration data show.

“Supply growth and mild weather returned working gas storage to a year-on-year surplus for the first time since December 2012,” Morgan Stanley analysts including New York-based Adam Longson said in a report e-mailed today. That “adds to near-term downside risk.”

Gas production from the Marcellus shale formation in the Northeast may climb to 16.3 billion cubic feet a day in January, up 19 percent from a year earlier, the EIA said Dec. 8 in its monthly Drilling Productivity Report. The agency is the Energy Department’s statistical arm.

The low in New York on Dec. 27 may be 36 degrees Fahrenheit (2 Celsius), 7 higher than average, data from AccuWeather Inc. in State College, Pennsylvania, show. Boston temperatures may drop to 35 degrees, 10 above normal.

‘Upside Swings’

While “headwinds” are set to persist through the end of the year, gas prices have the potential to rebound early in 2015 as forecasts point to the likelihood of colder weather, according to Morgan Stanley.

“With managed money net positioning near two-year lows, the potential for cold weather to produce upside swings and volatility also increases,” Longson said.

Hedge funds’ net-long wagers on U.S. natural gas fell 36 percent to 27,260 lots in the week ended Dec. 16, the lowest since October, the Commodity Futures Trading Commission said Dec. 19 in its weekly Commitments of Traders report. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract.

Colder changes to the weather forecasts in January mean gas inventories at the end of the season will be at 1.65 trillion cubic feet, JPMorgan analysts Scott Speaker and Shikha Chaturvedi in New York said in a Dec. 18 report e-mailed today.

An estimated 49 percent of U.S. households use gas for heating, according to the EIA.

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