Natural Gas Drops After U.S. Inventories Rise More Than Forecast

Aug 21, 2014 3:58 pm ET

Aug. 21 (Bloomberg) -- Natural gas futures dropped in New York after the government reported a U.S. stockpile increase that was bigger than forecast.

Inventories rose 88 billion cubic feet in the week ended Aug. 15 to 2.555 trillion, according to the U.S. Energy Information Administration. Analyst estimates compiled by Bloomberg showed a gain of 84 billion, while a survey of Bloomberg users predicted 86 billion. The gain topped the five- year average for the 18th consecutive week.

“This number tells us there is a lot of gas out there,” said John Woods, president of JJ Woods Associates and a New York Mercantile Exchange floor trader. “The market has indicated it needs more than a quick weather pattern to sustain a rally.”

Natural gas for September delivery fell 1.3 cents, or 0.3 percent, to $3.81 per million British thermal units at 10:32 a.m. on the New York Mercantile Exchange. Gas traded at $3.874 before the storage report was released at 10:30 a.m. Volume for all futures traded was 14 percent above the 100-day average. The futures have dropped 9.9 percent this year.

The stockpile increase was bigger than the five-year average gain for the week of 48 billion cubic feet, according to EIA data. Supplies rose 58 billion in the same period last year.

A deficit to the five-year average narrowed to 17.3 percent from 18.9 percent the previous week. Supplies were 16.4 percent below year-earlier inventories, compared with 17.7 percent in last week’s report.

Strengthening Storm

The National Hurricane Center said that an area of “shower and thunderstorm activity” east of the Windward Islands has a 70 percent chance of becoming a tropical system in the next five days. Conditions are conducive for the system, about 350 miles east of the Lesser Antilles, to become a tropical depression or storm as it moves west-northwestward at 15 to 20 miles per hour, the Miami center said in an 8 a.m. notice.

“Usually the first storm threat, even though it’s still pretty far out in the Atlantic, is always viewed as a temporary bullish factor,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami.

Gas rose as high as $3.955 per million Btu in early trading. The Gulf accounts for 5 percent of U.S. gas production, down from 26 percent in 1997.

Forecasting models about the timing of a cool front moving into the lower 48 states next week vary because of the possibility of the tropical activity, Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland, said in a note to clients today. Above-normal temperatures in the East through this week will give way to seasonal readings across most of the U.S. from Aug. 26 through Sept. 4.

Hot Weather

The high in St. Louis tomorrow may be 96 degrees Fahrenheit (36 Celsius), 9 above normal, before dropping five days later to a seasonal 86, according to AccuWeather Inc. in State College, Pennsylvania. Power plants account for 31 percent of U.S. gas consumption.

Record gas output will help boost inventories to 3.463 trillion by the end of October as new wells come online at shale deposits, such as the Marcellus in the Northeast, the EIA said in its Aug. 12 Short-Term Energy Outlook.

--With assistance from Brian K. Sullivan in Boston.