Natural Gas Fell a Third Day as Abating U.S. Cold May Cut Demand

Feb 03, 2014 3:46 pm ET

Feb. 3 (Bloomberg) -- Natural gas fell for a third day in New York as forecasts for milder U.S. weather signaled reduced demand for the heating fuel.

Gas slid 0.8 percent as Commodity Weather Group LLC in Bethesda, Maryland, predicted seasonal or higher temperatures for Feb. 13 to Feb. 17, replacing below-normal readings. Gas stockpiles have tumbled this heating season as waves of polar air boosted fuel use across the eastern U.S.

“Certainly you see cold weather ahead in February, but not the sort of cold weather that would require the record pace of withdrawals that we witnessed in January,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “With only eight weeks of the season left, the market has less concern about meeting winter demand.”

Natural gas for March delivery fell 3.8 cents to settle at $4.905 per million British thermal units on the New York Mercantile Exchange. Trading volume was 17 percent below the 100-day average at 2:35 p.m. Futures are up 16 percent this year.

The premium of March gas to April narrowed 9.1 cents to 39.8 cents. April gas traded 5.7 cents above May versus 7.5 cents on Jan. 31.

March $3 puts were the most active options in electronic trading. They were unchanged at 0.1 cent per million Btu on volume of 1,509 at 2:58 p.m. Puts accounted for 52 percent of trading volume.

Gas Volatility

Implied volatility for March at-the-money options was 69.73 percent at 2:45 p.m., compared with 33.3 percent a month ago.

Prices rebounded from a 3.9 percent drop earlier because “we got below $5, we are getting snow dumped on us and we have more cold in the forecast,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “In this market, you can’t trade as a contrarian because it’s a market that needs molecules and they are being paid for it accordingly. The demand is still there.”

Winter storm warnings and advisories stretched from Utah to Vermont today. Snow began falling in New York before 5 a.m., with as much as 8 inches (20 centimeters) forecast, according to the National Weather Service.

The low in Manhattan today may be 25 degrees Fahrenheit (minus 4 Celsius), 2 below normal, compared with last week’s low of 12 degrees on Jan. 28, 15 lower than average, according to AccuWeather Inc. in State College, Pennsylvania. Chicago’s low on Feb. 5 will drop to minus 5 degrees, 24 below normal, before rising to 27 degrees, 6 above normal, on Feb. 11.

Gas Use

About 49 percent of U.S. households use gas for heating, with the biggest share in the Midwest, according to the U.S. Energy Information Administration, the Energy Department’s statistical arm.

“Even this storm that’s under way doesn’t feel as challenging as the weather we’ve had behind us,” Viswanath said.

Gas stockpiles fell 1.641 trillion cubic feet in the 11 weeks ended Jan. 24 to 2.193 trillion, 43 percent faster than the five-year average drop of 1.146 trillion for the period, EIA data show.

Colder-than-average weather forecast for the first half of February will help drive gas inventories down to 1.198 trillion cubic feet by the end of March, Samantha Dart, an analyst with Goldman Sachs Group Inc. in London, said today in a note to clients today. The figure was revised down from 1.388 trillion projected two weeks ago.

Inventory Outlook

“This relatively low number reinforces the need for higher production growth than what we now embed for the year in order for the market to reach comfortable levels of inventories by the end of October,” Dart said.

The bank raised its 2014 U.S. gas price forecast to $4.50 per million Btu from $4.25, which is needed to spur more drilling in areas including the Fayetteville and Haynesville shale deposits in in Louisiana, Texas and Arkansas.

Gross gas output in the contiguous U.S. states rose 1.5 percent in November to average 75.95 billion cubic feet a day as operators reported new wells coming online or wells returning to service in the Marcellus shale in the Northeast, the government said in its EIA-914 report on Jan. 31.

--Editors: Bill Banker, Richard Stubbe