Natural Gas Halts 7-Week Rally as Supply Drop Matches Outlook

Dec 27, 2013 3:43 pm ET

Dec. 27 (Bloomberg) -- Natural gas futures fell in New York, halting a seven-week rally, following a government report showing a U.S. inventory decline that matched forecasts.

Gas slid 0.6 percent after the Energy Information Administration said stockpiles dropped 177 billion cubic feet to 3.071 trillion in the week ended Dec. 20. Analyst estimates compiled by Bloomberg predicted a slide of 177 billion. Forecasts for easing cold signaled reduced heating demand, which would slow the pace of gas withdrawals from storage.

“This is a real big number, but given the market’s immediate reaction, it looks like it’s been priced in,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “It all comes back to down to the weather. Next week’s number is going to be super low.”

Natural gas for January delivery fell 2.6 cents to $4.407 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since Dec. 18. Trading volume was 20 percent below the 100-day average at 2:44 p.m. The futures slipped 0.2 percent this week, capping the first decline since the week ended Nov. 1. Gas is up 32 percent this year.

January futures expired today. The more actively traded February contract declined 10.8 cents, or 2.4 percent, to $4.368 per million Btu.

The discount for January futures to February narrowed 0.4 cent to 3.9 cents. March gas traded 15.8 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 unchanged at 0.6 cent per million Btu on volume of 1,351 at 3:26 p.m. Calls accounted for 69 percent of trading volume.

“There isn’t a lot of volume and there isn’t a lot of liquidity” because of year-end holidays, Schork said. The market was closed Dec. 25 for Christmas.

The inventory withdrawal was bigger than the five-year average drop for the week of 125 billion cubic feet, the report showed. Supplies fell 74 billion in the same period last year. A deficit to the five-year average widened to 9.2 percent from 7.4 percent the previous week, the most ever in records going back to 2005. Supplies were 16 percent below year-earlier levels, compared with 13.1 percent in the prior report.

MDA Weather Services in Gaithersburg, Maryland, predicted warmer-than-normal weather for most of the East and West coasts through the end of the year.

Boston Weather

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 Northeast, MDA said. Temperatures will moderate Jan. 6 through Jan. 10, the forecaster said.

“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.”

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.

Marketed gas production will average 70.45 billion cubic feet a day this year, up 1.8 percent from the 2012 record of 69.18 billion, the EIA said in its Dec. 10 Short-Term Energy Outlook. Gains are being driven by new wells at the Marcellus shale in the Northeast.

The gas-rig count rose by 2 this week to 374, Baker Hughes Inc. data today showed. The number is down 13 percent this year.

The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, government data show.

--Editors: Bill Banker, Charlotte Porter