Natural Gas Falls to One-Week Low on Outlook for Easing Heat

Jun 19, 2014 5:33 pm ET

June 19 (Bloomberg) -- Natural gas futures dropped to a one-week low in New York as forecasts for milder weather may cap demand from power plants, bolstering efforts to increase stockpiles.

Gas fell 1.6 percent after the government’s Global Forecast System midday weather model turned cooler, showing below-normal temperatures from the Great Plains to the Midwest next week, with mostly normal readings on the East Coast, according to Frontier Weather Inc.

“We had to dial back on our power expectations,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The market expectation was that the next several releases would begin to show a slower build in inventories. That certainly was countermanded by the weather update.”

Natural gas for July delivery declined 7.5 cents to $4.584 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since June 11. Volume for all futures traded was 35 percent above the 100-day average at 2:43 p.m. The futures are up 8.4 percent this year and advanced to $4.886 on June 16, the highest intraday price since Feb. 26.

Gas prices are down 3.3 percent this week, heading for the first decline in four weeks.

Stockpiles rose by 113 billion cubic feet in the week ended June 13 to 1.719 trillion cubic feet, above analyst estimates for an increase of 110 billion and the five-year average gain for the period of 87 billion, a U.S. Energy Information Administration report today showed.

Market Swings

Gas inventories have climbed by more than 100 billion cubic feet for six straight weeks, a record streak in EIA data going back to 1994.

The market swung between gains and losses, dropping in reaction to a bigger-than-forecast supply report before rebounding on expectations that fuel stockpiling will slow on hotter weather. Prices dropped back down as the most recent models moderated those expectations.

“We had a pretty important and notable reversal,” Viswanath said. Over the next couple of weeks, “we are not going to see a significant change” in the size of inventory gains, she said.

Stockpiles were 33 percent below the five-year average, the biggest deficit for the period in data going back to 2006, according to the EIA, the statistical arm of the Energy Department.

Weather Outlook

Overnight models showed higher-than-average temperatures along the West Coast from June 24 through June 28 with seasonal readings across of the other contiguous states, according to MDA Weather Services in Gaithersburg, Maryland.

“Some of the heat is peaking today in the Midwest and heading East,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The focus is still going to be on the inventory deficit.”

The high in New Orleans on June 22 may be 92 degrees Fahrenheit (33 Celsius), 2 more than average, according to AccuWeather Inc. in State College, Pennsylvania. Cincinnati temperatures may reach 87 degrees, also 2 above normal.

Power plants account for 31 percent of gas demand, according to the EIA, the Energy Department’s statistical arm.

“There’s no denying how much gas we’re producing and putting in the ground, but there’s still a large storage deficit, so we’re seeing a muted response to the report,” said Aaron Calder, an analyst at Gelber & Associates in Houston.

LNG Terminal

Sempra Energy won unanimous approval from the Federal Energy Regulatory Commission to build the Cameron LNG export terminal in Louisiana, only the second project to gain FERC’s consent.

Sempra owns a 50.2 percent stake in the facility, which plans to be able to export 1.7 billion cubic feet a day starting in 2017 to countries that don’t have a free-trade agreement with the U.S., such as Japan and the 28 nations of the European Union.

Supplies will reach 3.424 trillion cubic feet by the end of October, which would be the least that period since 2008, according to the agency’s June 10 Short-Term Energy Outlook.

Gas consumption may climb 1.7 percent this year to 72.5 billion cubic feet a day, led by industrial users, the EIA said. Marketed gas production will expand by 4 percent to 73 billion cubic feet a day. Output will climb to an all-time high for the fourth consecutive year as new wells come online at the Marcellus shale deposit in the Northeast.