Natural Gas Caps First Monthly Gain Since October on Supply Drop

Feb. 28 (Bloomberg) -- Natural gas futures rose in New York, capping the first monthly gain since October, after a government report showed that U.S. stockpiles fell more than average last week.

Gas advanced to a four-week high after the Energy Information Administration said inventories dropped 171 billion cubic feet in the week ended Feb. 22 to 2.229 trillion cubic feet. The five-year average decline for the week is 118 billion. A supply deficit to year-earlier levels grew to the widest in more than four years.

“The storage number was a little bit bullish,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “March looks like it’s going to be quite cold and we definitely still have three more triple-digit withdrawals left in us.”

Natural gas for April delivery gained 5.2 cents, or 1.5 percent, to $3.486 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Jan. 23. Trading volume was 2.1 percent above the 100-day average at 2:44 p.m. The futures have climbed 38 percent from a year ago and gained 4.4 percent this month.

April gas futures were 21.3 cents below the October contract, compared with 21.4 cents yesterday.

April $3.25 puts were the most active gas options in electronic trading. They fell 1.4 cents to 3.1 cents per million Btu on volume of 675 contracts as of 3:03 p.m. Puts accounted for 53 percent of options volume.

Stockpile Estimates

Analyst estimates compiled by Bloomberg showed an expected gas supply decline of 170 billion cubic feet. A survey of Bloomberg users predicted a stockpile decrease of 172 billion. A surplus to five-year average supplies narrowed to 16 percent from 18 percent the previous week, according to the EIA, an arm of the Energy Department.

Inventories were 12 percent below year-earlier inventories, compared with 9.2 percent in last week’s report. The deficit was the biggest since August 2008.

Natural gas production from the lower-48 U.S. states fell 1.1 percent to 72.7 billion cubic feet a day in December from a revised 73.53 billion the previous month, the EIA said today in its monthly EIA-914 report. Output was up 0.6 percent from December 2011, the smallest annual gain since 2009.

Production in Louisiana decreased 3.1 percent to 7.47 billion cubic feet a day as some operators reported shut-ins. New Mexico output fell 3.9 percent amid cold weather.

Colder Weather

Commodity Weather Group LLC in Bethesda, Maryland, said temperatures may be below-average in the central U.S. from March 10 through March 14.

The low in Chicago on March 13 may be 19 degrees Fahrenheit (minus 7 Celsius), 11 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. The low in Minneapolis may be 15 degrees, 8 below normal.

About 50 percent of U.S. households use gas for heating, according to the EIA.

“Though the recent cold weather has been constructive in sparking a rally, we don’t think that there is much further running room to the upside as a short bout of late-season weather is unlikely to materially impact end-of-season balances,” Mike Tran, an analyst at CIBC World Markets Inc. in New York, said in a note to clients today.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.53 per million British thermal units in 2013, compared with $2.75 per million Btu last year, the Energy Information Administration said in its monthly Short-Term Energy Outlook, released Feb. 12 in Washington.

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 11 months of last year, government data show. If the trend continued through 2012, it will be the highest level of self-sufficiency since 1991.

--Editors: Bill Banker, Charlotte Porter