Natural Gas Futures Decline on Outlook for Warmer U.S. Weather

Feb. 12 (Bloomberg) -- Natural gas futures dropped to a two-week low in New York, falling for the third time in four days. Forecasts showed above-normal temperatures that would curtail heating-fuel demand amid ample supplies.

Gas slid 1.5 percent after MDA Weather Services in Gaithersburg, Maryland, predicted warmer-than-average weather in the eastern half of the U.S. from Feb. 22 through Feb. 26. Inventories totaled 2.684 trillion cubic feet in the week ended Feb. 1, 15 percent above the five-year average for the period.

“It’s already mid-February and supplies are still well above the five-year average,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “The calendar is weighing on the market.”

Natural gas for March delivery fell 4.9 cents to settle at $3.23 per million British thermal units on the New York Mercantile Exchange, the lowest closing price since Jan. 29. The futures have dropped 3.6 percent this year. Trading volume was 32 percent above the 100-day average at 2:51 p.m.

April $4.05 calls puts were the most active gas options in electronic trading. They dropped 0.2 cent to 0.5 cent per million Btu on volume of 1,991 contracts as of 2:44 p.m. Calls accounted for 52 percent of options volume.

April gas traded 6.6 cents above the March contract, compared with 6.7 cents yesterday.

The low in New York on Feb. 24 may be 39 degrees Fahrenheit (4 Celsius), 9 higher than average, according to AccuWeather Inc. in State College, Pennsylvania. The low in Cleveland may be 34 degrees, 6 more than usual.

About 50 percent of U.S. households use gas for heating, data from the Energy Information Administration show. The agency is part of the Energy Department.

Warmest Year

Last year was the warmest in records going back to 1895 for the 48 contiguous U.S. states and the second-worst for weather extremes including drought, hurricanes and wildfires, according to the National Oceanic and Atmospheric Administration.

The supply surplus to the five-year norm has climbed from 11 percent over the past three report periods.

The EIA raised its forecast for natural gas output in 2013 by 0.3 percent and cut its outlook for prices in a report today.

Marketed gas production will average a record 70.02 billion cubic feet a day this year, up from 69.84 billion estimated in January, the EIA said in its monthly Short-Term Energy Outlook. Output may climb 1.1 percent from 2012.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.53 per million British thermal units, down from the previous estimate of $3.74. Gas averaged $2.75 last year.

Shale Gas

“Production in the Marcellus Shale areas of Pennsylvania and West Virginia is expected to continue rising, as recently drilled wells become operational,” the EIA said.

Output rose to an all-time high of 28.5 trillion cubic feet in 2011, led by record output from shale deposits, the EIA said in a separate report Jan. 7. Shale accounted for 30 percent of total production in 2011, up from 22 percent the previous year.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84 percent of its energy needs in the first 10 months of last year, government data show. If the trend lasted through 2012, it would be the highest level of self-sufficiency since 1991.

--Editors: Bill Banker, Charlotte Porter