Jan. 3 (Bloomberg) -- Natural gas futures fell, capping a second straight weekly decline, after a government report showed the first below-average U.S. supply drop in five weeks.
Gas slid 0.4 percent after Energy Information Administration data showed inventories lower by 97 billion cubic feet in the week ended Dec. 27, below the five-year norm of 121 billion. Analyst estimates compiled Bloomberg predicted a 112 billion decline. Prices rose 1.6 percent earlier as MDA Weather Services forecast “the coldest air in decades” in the East early next week.
“The market was anticipating a light withdrawal for last week, but the number came in even lower than expectations,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. ’’The fact is, the market has priced in this very cold outburst of weather in early January. However, there is a lot of uncertainty following next week’s cold weather. The balance of January is so important.’’
Natural gas for February delivery slid 1.7 cents to settle at $4.304 per million British thermal units on the New York Mercantile Exchange. Trading volume was little changed from the 100-day average at 3:17 p.m. Futures fell 2.3 percent this week and are up 35 percent from a year ago.
The premium for February contracts versus March narrowed 0.3 cent to 2.2 cents. March gas traded 11.4 cents above the April contract, compared with 11.3 cents yesterday.
February $4.25 puts were the most active options in electronic trading. They fell 0.6 cents to 12.1 cents per million Btu on volume of 913 at 3:20 p.m. Calls accounted for 61 percent of trading volume.
Gas prices moved between gains and losses today as the market weighed the light storage withdrawal and forecasts for the coldest temperatures of the season in the central and eastern U.S. next week, Viswanath said. Trading also was down this week because of the Jan. 1 New Year’s holiday, she said.
A supply deficit to the five-year average narrowed to 8.9 percent from a record 9.2 percent the previous week. Stockpiles were 15.9 percent below year-earlier levels, compared with 16.1 percent in the prior report.
During the report period, a brief East Coast warm-up boosted temperatures in New York City to 71 degrees Fahrenheit (22 Celsius), 30 above normal, said AccuWeather Inc. The market was closed on Dec. 25 for Christmas.
“It was a very disappointing number but it can be explained,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. ’’We had some real good warmth toward the end of last week and you also had the holidays, so that certainly kicked into demand.’’
A fast-moving storm brought near-blizzard conditions to parts of the Northeast late yesterday. Manhattan’s Central Park received 6 inches (15 centimeters) of snow by 7 a.m., according to the National Weather Service. Boston’s Logan International Airport reported 14.6 inches, said Nicole Belk, a weather service meteorologist in Taunton, Massachusetts.
Energy demand will run high across the Midwest and Northeast through the middle of next week as bitter cold moves in, according to MDA in Gaithersburg, Maryland. Weather models show the potential for afternoon temperatures below zero through the Ohio valley and Great Lakes while cold and gusts may produce wind chills as low as minus 60 in Minnesota.
“Dangerous levels of cold, including sub-zero high temperatures in Chicago and teens in New York City, will cause heating demand to soar,” Bob Haas, energy weather manager at MDA, said in a note to clients today.
The low in Chicago on Jan. 6 will be minus 11 degrees, 29 below normal, and the next day Manhattan’s reading will drop to 5, 22 lower than average, according to AccuWeather in State College, Pennsylvania. About 49 percent of U.S. households use gas for heating, with the biggest consumers in the Midwest, Energy Information Administration data show. The heating season is from November through March.
Models from MDA and Commodity Weather Group LLC in Bethesda, Maryland both showed the biting cold early next week will give way to above-normal readings on the East Coast from Jan. 13 through Jan. 17.
“With so much uncertainty coming on the balance of January, we might see an extended hibernation for market bears, but it’s not an outright buy signal for investors,” Viswanth said. “It’s cold right now, but we’ve already factored that in.”
--With assistance from Brian K. Sullivan in Boston. Editors: Charlotte Porter, Richard Stubbe