Natural Gas Futures Decline on Outlook for Ample U.S. SuppliesNaureen S. Malik
Natural gas futures dropped in New York on speculation that inventory levels will be high enough after the heating season ends this month to meet demand as mild weather leads to a seasonal lull in fuel consumption.
U.S. stockpiles fell 198 billion cubic feet in the week ended March 6 to 1.512 trillion, the Energy Information Administration said Thursday. Analyst estimates showed a decline of 191 billion. A blast of frigid air last week that boosted demand for the heating fuel gave way to above-normal temperatures in the lower 48 states this week.
“Despite being the largest withdrawal ever reported in the month of March, traders appear to be looking ahead at milder weather and the prospect of a net build before month end,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.
Natural gas for April delivery fell 9 cents, or 3.2 percent, to settle at $2.734 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 2.8 percent below the 100-day average at 2:48 p.m. Gas futures have dropped 5.4 percent this year.
A deficit to five-year average supplies widened to 13 percent, the most since September, the EIA report showed. The average decline for the week was 116 billion cubic feet. Storage levels were up 47 percent from a year-earlier versus 40 percent in last week’s report.
“The market was close to expectations,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, who predicted a storage draw of 198 billion. “It shows with cold temperatures there is pretty good demand, but that’s still not all that bullish on a temperature-adjusted basis.”
Gas prices extended losses after the government’s Global Forecast System run midday turned warmer for some of the biggest consumers of the heating fuel.
Temperatures will be “a little warmer than normal” in the 6- to 15-day forecast in the Midwest and South whereas overnight computer models showed they would be cooler, said Jim Southard, a meteorologist with Frontier Weather Inc. in Tulsa, Oklahoma. “The Northeast still looks to average colder than normal.”
The low in Manhattan Friday may be 40 degrees Fahrenheit (4 Celsius), 6 above normal, and then drop six days later to 31, AccuWeather Inc.’s website showed. Chicago’s low during the same period will go from 44, 14 higher than average, to 23. About half of U.S. households use gas for heating, led by the Midwest and Northeast.
Gas production from the Marcellus shale in the East will increase for the sixth consecutive month to 16.8 billion cubic feet a day in April, the EIA said March 9 in its Drilling Productivity Report. Daily output from the top seven shale deposits, which accounted for all U.S. gas supply growth 2011 through 2013, will expand 0.5 percent to 46.2 billion.
Next week’s cold snap may not be enough to offset strong gas production and may result in a “premature close of the heating season,” said Viswanath.
“It feels like the coyote running off the cliff and it hasn’t realized there isn’t any ground beneath him,” she said. “There just isn’t any great fundamental support in the market right now.”