Natural Gas Falls in ‘Limbo Stick’ Market on Milder Weather

Natural gas futures declined in New York for the first day in three on forecasts of milder weather that may crimp demand for the heating fuel.

Gas slid 1.4 percent as temperatures may be normal or above normal across most of the eastern and central U.S. through March 2. Prices have dropped 11 percent this year on speculation that near-record production of the heating fuel will counter bigger- than-average supply declines caused by cold weather.

“We went from record low temperatures to above-average temperatures in most of the country,” said Phil Flynn, vice president of research at PFGBest in Chicago. “This market’s like a limbo stick right now. Everyone’s wondering how low we can go.”

Natural gas for March delivery fell 5.5 cents to settle at $3.921 per million British thermal units on the New York Mercantile Exchange. The futures pared losses at around midday before resuming their declines. Gas has tumbled 26 percent from a year ago.

The low temperature in New York on Feb. 26 may be 38 degrees Fahrenheit (3 Celsius), 8 degrees above normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Chicago may be 31 degrees Fahrenheit, 6 degrees above normal.

U.S. heating demand from Feb. 22 through Feb. 26 may be 7 percent below normal, according to Weather Derivatives in Belton, Missouri.

About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.

Supply Estimates

The department may report a larger-than-normal withdrawal from gas inventories tomorrow because of cold weather last week, analysts predicted.

The report may show a reduction in stockpiles of 233 billion cubic feet, according to the median of 20 analyst estimates compiled by Bloomberg. The five-year average drop for the week is 150 billion.

Gas inventories totaled 2.144 trillion cubic feet for the week ended Feb. 4, 2.1 percent below the five-year average, according to the Energy Department.

Gas futures may fall below $3.40 in New York as production rises, Bank of America-Merrill Lynch said in a report today.

“We now see front-month futures dropping below $3.40 a million British thermal units in coming weeks and see downside risks to our second-quarter average price forecast of $4.30,” analysts including Sabine Schels in London said in the report.

Price Outlook

U.S. natural gas prices may stay below $4 through the spring amid milder weather and a recovery in gas production after outages earlier this month, Societe Generale analysts Laurent Key and Stephanie Aymes said yesterday in a note to clients.

The U.S. raised its forecast for natural gas output in 2011 by 1.5 percent, the Energy Department said Feb. 8 in its monthly Short-Term Energy Outlook.

Marketed gas production will average 62.32 billion cubic feet a day, up from 61.38 billion estimated in January, the department said.

Gas futures volume in electronic trading on the Nymex was 242,799 as of 2:54 p.m., compared with the three-month average of 302,000. Volume was 322,299 yesterday. Open interest was 944,994 contracts. The three-month average open interest is 807,000.

The exchange has a one-business-day delay in reporting open interest and full volume data.

(Source: http://www.bloomberg.com/news/2011-02-16/natural-gas-falls-in-limbo-stick-market-as-milder-weather-crimps-demand.html)