June 13 (Bloomberg) -- Natural gas futures dropped from a five-week high in New York on speculation that mild U.S. weather will limit fuel demand before higher temperatures return.
Gas fell 0.5 percent as MDA Weather Services forecast seasonal or below-normal temperatures across most of the lower 48 states through June 17. Higher readings are due the following 10 days. Prices yesterday jumped 5.6 percent, the biggest one- day gain since Feb. 19, after a government report showed a smaller-than-forecast stockpile increase.
“We are in a period where we don’t have a lot of extreme- weather demand but extreme demand could be right around the corner,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “The bottom line is the uncertainty about how much gas we are going to have at the end of the season. The bears are looking at injections that are bigger than the ones we have seen.”
Natural gas for July delivery slid 2.3 cents to $4.739 per million British thermal units on the New York Mercantile Exchange. Prices yesterday rose to $4.762, the highest settlement since May 6. Volume for all futures traded was 5.1 percent above the 100-day average at 2:46 p.m. The futures gained 0.6 percent this week, the third straight weekly increase, and have advanced 12 percent this year.
The premium for July contracts versus October, which is the last month of the six-month gas stockpiling season, narrowed to 0.6 cent, the least since April 1. The premium widened to a record 7 cents for these 2014 delivery contracts on May 28. In the previous five years, July futures traded at an average discount of 22.53 cents at this time of the year.
Gas should average about $4.50 per million Btu this summer, assuming normal weather, as production grows and power plants opt to burn more coal, Shiyang Wang, an analyst for Barclays Plc in New York, said in a report today. “We continue to expect the storage deficit to last year’s level to narrow further throughout the injection season.”
Gas stockpiles expanded by 107 billion cubic feet in the week ended June 6 to 1.606 trillion, the lowest level for the time of the year since 2003, a weekly U.S. Energy Information Administration report yesterday showed. The deficit to year- earlier levels narrowed to 31 percent from 33 percent in last week’s report.
Below-normal temperatures are forecast across the Great Plains and Pacific Northwest over the next five days, touching Florida and some Midwestern states as well, said MDA in Gaithersburg, Maryland. Most of the lower 48 states will see above-normal readings starting June 18.
The high in New York City on June 25 will be 81 degrees Fahrenheit (27 Celsius), 6 below normal, before climbing two days later to 92 degrees, 6 higher than average, according to AccuWeather Inc. in State College, Pennsylvania.
Electricity generators account for 31 percent of gas consumption, according to the EIA.
A record 2.602 trillion cubic feet of gas will need to flow into storage from April through October to get supplies up to 3.424 trillion cubic feet before the next heating season, according to the EIA’s June 10 Short-Term Energy Outlook. Weekly storage injections have averaged 78 billion cubic feet so far and will need to average 87 billion in the next 21 weekly reports to meet the government forecast.
Gas output in the lower 48 states will increase 4 percent this year to average 73 billion cubic feet a day, climbing to an all-time high for the fourth consecutive year as new wells come online at shale deposits such as the Marcellus in the Northeast, the EIA’s monthly forecast showed.
The surge in Marcellus output, as well as gas produced as a byproduct of oil and other liquids, is making up for a drop in dry gas supplies pumped in other regions.
The number of gas drilling rigs fell by 10 this week to 310, the least in two months, according to rig data released today by Baker Hughes Inc. in Houston. The number is down 17 percent this year.
“The market remains strong, and the deficit remains too large to ignore,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “It appears likely that $5 will be eclipsed with ease if any hot-weather systems engulf the eastern part of the country before the end of June.”