Natural Gas Drops to 3-Week Low on Above-Forecast Stockpile Gain

May 08, 2014 5:06 pm ET

May 8 (Bloomberg) -- Natural gas futures dropped to a three-week low in New York after a government report showed a bigger-than-forecast U.S. inventory increase.

Gas dropped as much as 2.5 percent after the Energy Information Administration said stockpiles rose 74 billion cubic feet in the week ended May 2 to 1.055 trillion. Analyst estimates showed a gain of 70 billion, while a survey of Bloomberg users also predicted an increase of 70 billion.

“We are getting off to a very solid start to this injection season,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “We’ve also seen very strong production. You have the hole to make up but it’s getting better with each passing week.”

Natural gas for June delivery fell 9.9 cents, or 2.1 percent, to $4.641 per million British thermal units at 10:32 a.m. on the New York Mercantile Exchange. Gas traded at $4.676 before the storage number was released at 10:30 a.m. in Washington. Prices reached $4.62, the lowest intraday price since April 17

Volume for all futures traded was 43 percent below the 100- day average. The futures have gained 9.7 percent this year.

The stockpile increase was bigger than the five-year average gain for the week of 72 billion cubic feet, according to the EIA, the Energy Department’s statistical arm. A deficit to the five-year average narrowed to 48.2 percent from 50.1 percent the previous week. Supplies were 43 percent below year-earlier inventories, compared with 44.6 percent in last week’s report.

Stockpile Outlook

Inventories may reach 3.405 trillion cubic feet by the end of October, down 404 billion from a year earlier, the EIA said in its May 6 Short-Term Energy Outlook. Reaching that level will take a record flow of gas into storage after supplies dropped to 822 billion in late March, the lowest level since 2003. The EIA estimated weekly injections from April through October will need to average 90 billion cubic feet, 20 billion more than the five- year average gain for the period.

Marketed gas production will increase 3 percent in 2014 to an all-time high of 72.26 billion cubic feet a day, the EIA’s outlook showed.

Forecasts showing milder weather six to 10 days from today may cut demand for the fuel, said Santiago Diaz, an energy trading associate at FCStone Latin America LLC in Miami. “It will support the injection efforts of the storage players.”

California Heat

Commodity Weather Group LLC in Bethesda, Maryland, predicted above-normal temperatures in the East over the next five days will fade next week. Readings in the central states will be below normal next week while a surge of heat builds on the West Coast.

The high in Sacramento, California, on May 14 will jump to 100 degrees Fahrenheit (38 Celsius), 20 above normal, while New York’s reading that day will be 4 higher than usual at 74 degrees, according to AccuWeather Inc. in State College, Pennsylvania. The next day, Chicago’s low will drop to 37 degrees, 14 below normal.

About 49 percent of U.S. households use gas for heating while electricity generators consume 31 percent of the fuel, U.S. Energy Information Administration data show.