Sept. 18 (Bloomberg) -- Natural gas dropped from an eight- week high on speculation that milder weather will cut fuel use.
The futures fell 0.9 percent as forecasts showed seasonally mild weather on the East Coast and cooler readings in the West from Sept. 23 through Sept. 27, according to Commodity Weather Group LLC in Bethesda, Maryland. Gas rose yesterday on speculation that a government report tomorrow will show a stockpile gain that’s below year-earlier levels, the first time that would happen since April.
“I can’t get too excited with regard to the weather forecast from a cooling demand standpoint and it’s too early for significant heating demand,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “Tomorrow’s report is really priced into the market.”
Natural gas for October delivery fell 3.2 cents to settle at $3.713 per million British thermal units on the New York Mercantile Exchange. Trading volume was 17 percent above the 100-day average as of 2:52 p.m. Prices yesterday closed at $3.745, the highest settlement since July 19. The futures are up 11 percent this year.
The discount of October to November futures narrowed 0.3 cent to 7.4 cents. October gas traded 32 cents below the January contract, compared with 30.9 cents yesterday.
Natural gas was the biggest loser in the Standard & Poor’s GSCI Spot Index of 24 raw materials, as commodities rallied after the Federal Reserve said it would maintain stimulus spending.
The Federal Open Market Committee concluded a two-day meeting by saying it will keep monthly bond purchases at $85 billion, saying it needs to see signs of lasting improvement in the economy. The Fed was forecast to cut purchases by $5 billion, according to a Bloomberg News survey of economists.
Uncertainty over what the Fed’s decision could mean for commodities in general prompted some gas traders to capture profits after the jump in prices earlier this week, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.
October $3.80 calls were the most active options in electronic trading. They were 0.9 cent lower at 3.2 cents per million Btu on volume of 1,294 at 3:37 p.m. Calls accounted for 61 percent of trading volume. Implied volatility for November at-the-money options was 29.19 percent at 3:30 p.m., compared with 28.46 percent yesterday.
The high temperature in New York City on Sept. 24 may be 72 degrees Fahrenheit (22 Celsius) and Washington may be 76 degrees, both in line with historical norms, according to AccuWeather Inc. in State College, Pennsylvania. Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.
A large area of thunderstorms and low pressure drifting across the Yucatan Peninsula has an 80 percent chance of becoming a tropical system within five days, according to the National Hurricane Center.
The system will probably become Tropical Storm Jerry soon, said Jared Smith, a meteorologist with MDA Weather Services in Gaithersburg, Maryland. A system becomes a tropical storm when its winds reach 39 miles (63 kilometers) per hour and a hurricane when winds hit 74 miles per hour.
Dan Kottlowski, a meteorologist with AccuWeather Inc. in State College, Pennsylvania, said the system might be picked up by a cold front coming across Texas and pushed further north into the Gulf of Mexico for a possible landfall somewhere between Louisiana and Florida. There is also a chance it will go west into Mexico, he said.
The Gulf will account for 5.6 percent of U.S. natural gas production this year, EIA data show.
A weekly EIA report due tomorrow may show that gas inventories rose by 55 billion cubic feet last week, based on the median of 21 analyst estimates compiled by Bloomberg. A number below 54 billion would be a record low for this time of the year, Schork said.
The five-year average gain for the seven days is 74 billion cubic feet, EIA data show. Supplies rose 61 billion the same time last year.
U.S. stockpiles totaled 3.253 trillion cubic feet in the week ended Sept. 6, 1.4 percent above the five-year average for the period, last week’s supply report showed. A deficit versus year-earlier levels narrowed to 5 percent from 6.2 percent.
--With assistance from Joshua Zumbrun and Jeff Kearns in Washington and Brian K. Sullivan in Boston. Editors: Bill Banker, Charlotte Porter