Natural Gas Drops as Milder U.S. Weather May Limit Heat Demand

Dec 27, 2013 9:58 am ET

Dec. 27 (Bloomberg) -- Natural gas dropped for a second day this week in New York as the outlook for moderating U.S. cold signaled reduced demand for the heating fuel.

Gas fell as much as 1.7 percent as MDA Weather Services predicted above-normal temperatures for most of the East and West coasts through the end of the year. Last week, the government reported a record U.S. inventory decline after a storm system sent frigid air and snow across parts of the Northeast and Midwest.

“We are seeing temperatures that are warmer than normal in the key consuming regions,” said Ellen Stamm, global natural gas analyst at Schneider Electric in Louisville, Kentucky. “For the next few months it’s supposed to be more of a return to normal, especially after last week, when we saw the new record withdrawal. Things are calming down after that.”

Natural gas for January delivery fell 4.8 cents, or 1.1 percent, to $4.385 per million British thermal units at 9:42 a.m. on the New York Mercantile Exchange. Trading volume was 43 percent below the 100-day average. Gas is down 0.8 percent this week, heading for the first drop in eight weeks, and up 31 percent this year.

January futures expire today. The more actively traded February contracts fell 5.9 cents, or 1.3 percent, to $4.417.

The discount for January futures to February narrowed 0.7 cent to 3.6 cents. March gas traded 18 cents above the April contract, compared with 22.1 cents yesterday.

Options Trading

May $7 calls were the most active options in electronic trading. They were 0.1 cent higher at 0.7 cent per million Btu on volume of 1,341 at 9:44 a.m. Calls accounted for 80 percent of trading volume.

The high temperature in Boston on Dec. 30 will be 42 degrees Fahrenheit (6 Celsius), 5 above normal, while Washington may be 3 higher than average at 47 degrees, according to AccuWeather Inc. in State College, Pennsylvania.

For the first five days of 2014, weather models show “a significant surge of the polar vortex toward southern Quebec” bringing a threat of significant cold from the upper Midwest toward the northeastern U.S., MDA said. The outlook for the East turned less cold for Jan. 6 through Jan. 10, the Gaithersburg, Maryland-based forecaster said.

About 49 percent of U.S. households use gas for heating, EIA data show. The heating season from November through March is the peak demand period for the fuel in the lower 48 states.

U.S. inventories probably fell by 177 billion cubic feet in the week ended Dec. 20, based on the median of 18 analyst estimates compiled by Bloomberg. Estimates ranged from withdrawals of 163 billion to 192 billion. The five-year average decline for the period is 125 billion. Supplies fell by 74 billion in the same period last year.

The supply drop of 285 billion reported the previous week was a record based on EIA data going back to 1994. Stockpiles totaled 3.248 trillion in the seven days ended Dec. 13, 7.4 percent below the five-year average, the widest deficit in records going back to 2005.

--Editors: Charlotte Porter, Bill Banker