Warm December Outlook Spurs Biggest U.S. Gas Drop Since January

  • Natural gas stockpiles reached an all-time high last week
  • November will see 24% fewer heating degree days than in 2014

Natural gas futures in New York capped the biggest weekly loss since January as the outlook for an unusually mild December threatens to extend a supply glut.

Temperatures will be above normal across the East from Nov. 25 through Nov. 29, with warmth lingering in the Northeast, mid-Atlantic and the Great Lakes areas the following five days, said MDA Weather Services. The high in Manhattan on Nov. 27 may be 58 degrees Fahrenheit (14 Celsius), 8 above normal, according to AccuWeather Inc.’s website.

Gas prices tumbled 9.1 percent this week, capping the biggest weekly decline since Jan. 29, after a government report showed stockpiles soared to an all-time high of 4 trillion cubic feet. Production continues to outpace supply as mild weather delays the start of the peak heating-demand season, when consumers typically start to draw inventories down.

“The report yesterday showing the industry reached the 4 tcf level was certainly an important factor,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The market is really looking at the possibility that warm weather will return in December, and the industry is going to be hard-pressed to take enough out of storage to rebalance the market in 2016.”

Year’s Slide

Gas futures for December delivery fell 13.1 cents, or 5.8 percent, to $2.145 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Oct. 28. Volume was 48 percent above the 100-day average at 2:36 p.m. The futures are down 26 percent so far this year, the biggest year-to-date slide in five years.

December $2 puts were the most active options in electronic trading, rising 1.4 cents to 1.9 cents on volume of 2,460 contracts at 3:01 p.m. Prices also rose for the next three most active options, December $2.10, $2.15 and $1.90 puts.

November is on track to be 24 percent warmer than a year earlier based on heating degree days, a measure of weather-driven energy demand weighted by population, Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, said in an e-mail.

Warmth Outlook

The number of heating degree days will be 490 this month compared with 646 last November. Next month will be warm as well, though not as mild as December 2014, with heating degree days for the period rising 1.8 percent to 780, he said.

“Last December was super warm, and while we expect this December to be warmer than normal, there should be some cooler volatility at times across the South and West,” Rogers said.

Stockpiles of the fuel in the lower 48 states were 5.5 percent above the five-year average on Nov. 13, the biggest surplus for the time of the year since 2011, U.S. Energy Information Administration data show.

Weather forecasts suggest that it won’t be cold enough in the right places for stockpiles to show a net withdrawal until next week, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients Thursday. He sees inventories climbing to 4.007 trillion cubic feet this week.

“From a fundamental perspective, we think the market has reached a juncture where the lower the price goes, the more bullish we’ll become,” he said.

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