Natural Gas Falls to 3-Month Low; Output to Come ‘Roaring’ Back

Natural gas futures fell to the lowest price in more than three months on rising production and milder weather as the peak-demand heating season winds down.

Gas dropped 0.2 percent. Production of the heating and power-plant fuel “will come roaring back” after a spell of cold weather that disrupted output earlier this month, Raymond James & Associates said in a note to clients today.

“No one is worried about future supplies of gas anymore,” said Brad Florer, a trader at Kottke Associates Inc., an energy trading firm in Louisville, Kentucky. “Winter is coming to an end.”

Natural gas for March delivery fell 0.9 cent to $3.867 per million British thermal units on theNew York Mercantile Exchange, the lowest settlement price since Nov. 16. The futures have dropped 21 percent from a year ago and are down 13 percent this month.

Floor trading was closed yesterday for the U.S. Presidents Day holiday and electronic trades will be booked with today’s transactions for settlement purposes.

Cold weather in the major gas-producing regions this month may lead to “misleading bullish” U.S. supply data later this year, said J. Marshall Adkins and Kevin Smith, analysts with Raymond James in Houston. Below-normal temperatures can cause liquid to freeze in gas lines, disrupting output from wells.

Cold’s Production Impact

Frigid weather probably reduced gas production by about 5 billion cubic feet per day earlier this month, Adkins and Smith said.

Marketed gas production may grow 0.8 percent in 2011, the Energy Department said Feb. 8 in its Short-Term Energy Outlook. The department is scheduled to release monthly production dataon Feb. 28, covering output for December. Production data for February will be released in April.

Gross natural gas production in November was 76.05 billion cubic feet per day, 1.1 percent above October output, according to the Energy Department. Gross production excludes gas used for repressuring, quantities vented and flared, and non-hydrocarbon gases removed in treating or processing operations.

Colder-than-normal weather is likely in the northern U.S. next week, while temperatures may be normal or above-normal elsewhere, according to Commodity Weather Group in Bethesda,Maryland.

Cold Forecasts

The low temperature in Chicago on March 1 may be 22 degrees Fahrenheit (minus 6 Celsius), 4 degrees below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in New York may be 43 degrees Fahrenheit, 12 degrees above normal.

Heating demand in the Northwest may be 30 percent above normal next week, according to Weather Derivatives in Belton, Missouri. Demand in the Northeast may be 22 percent below normal.

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

Gas futures volume in electronic trading on the Nymex was 211,815 as of 2:42 p.m., compared with the three-month average of 301,000. Volume was 235,704 on Feb. 18. Open interest was 955,054 contracts. The three-month average open interest is 817,000.

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

(Source: http://www.bloomberg.com/news/2011-01-12/natural-gas-increases-for-second-day-in-new-york-on-inventory-forecasts.html)