Natural gas declines on forecast of heat wave’s end

By Naureen S. Malik
Bloomberg News

Natural gas futures declined in New York for the first time in four days on speculation that moderating heat will reduce demand for the power-plant fuel.

Gas fell 1.3 percent as forecasts showed an East Coast heat wave this week will give way to milder weather from July 22 through July 26, according to MDA Weather Services in Gaithersburg, Maryland. July 2012 was the hottest month in the lower 48 states in records going back 117 years, National Oceanic and Atmospheric Administration data show.

“It’s definitely the perception of what kind of weather we are going to get around the corner; I don’t see anything extreme in the forecast,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “We have a lot of supply and not quite as much demand as last year.”

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Natural gas for August delivery slid 4.8 cents to settle at $3.629 per million British thermal units on the New York Mercantile Exchange. Trading volume was 34 percent below the 100-day average at 2:35 p.m. Prices have risen 8.3 percent this year.

The discount of August to October futures widened 0.2 cent to 1.4 cents.

October $2.70 puts were the most active options in electronic trading. They were unchanged at 0.6 cent per million Btu on volume of 2,015 at 3:27 p.m. October $4.90 calls slid 0.1 cent to 0.5 cent also on volume of 2,015 lots. Puts accounted for 56 percent of trading volume. Implied volatility for at-the- money options expiring in August was 31.43 percent at 3:15 p.m., compared with 30.94 percent yesterday.

Power Plants

The high temperature in New York City on July 25 will be 81 degrees Fahrenheit (27 Celsius), 3 below normal, after reaching highs in the mid-90s this week, according to AccuWeather Inc. in State College, Pennsylvania. Chicago’s high may be 6 lower than the usual reading at 78 degrees.

Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

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Gas futures have slumped 18 percent from the 21-month high of $4.444 per million Btu reached on May 1 as stockpile gains topped five-year average for six consecutive weeks.

Temperatures during the current heat wave have been mostly contained below 95 degrees and “that is an important point” because several days of at least 100 degrees are needed for storage injections to really drop off, John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today.

Stockpile Deficit

U.S. inventories probably expanded by 65 billion cubic feet last week, based on the median of 17 analyst estimates compiled by Bloomberg. The five-year average gain for the period is 70 billion, EIA data show. Supplies increased by 29 billion the same time last year.

Gas supplies totaled 2.687 trillion cubic feet in the week ended July 5, 0.8 percent below the five-year average for the seven days. The deficit has narrowed from 6.2 percent on April 26. Inventories were down 14.2 percent from a year earlier, compared with 30.9 percent in April.