Natural Gas Falls for Third Day as Milder Weather May Curb Heating Demand

Natural gas futures fell for a third day in New York as forecasts showed temperatures will be lower than normal in the U.S. South this week, reducing demand for the power-plant fuel to run air conditioners.

Gas declined 2 percent as forecasters including Commodity Weather Group LLC in Bethesda,Maryland, said temperatures will be below normal through May 8. U.S. nuclear production rose for a second day in a rebound from the lowest levels in almost 12 years. The relative-strength index for gas futures stayed near a sell signal.

“The weather is moderating and it’s taking some premiums out of the market,” said Carl Neill, an energy consultant at Risk Management Inc. in Atlanta. “We are in a normal shoulder period and the market is reacting accordingly.”

Natural gas for June delivery fell 9.3 cents to settle at $4.577 per million British thermal units on the New York Mercantile Exchange. Prices have dropped 2.6 percent this week after rising the previous three weeks.

Gas futures open interest on the Nymex rose above 1 million for the first time, according to Chris Grams, a spokesman for CME Group Inc., which owns the Nymex.

The total contracts outstanding reached 1,003,421 yesterday, breaking the previous record of 992,434 set on May 2, Grams said in an e-mail today. The three-month average open interest is 936,000.

Futures Volume

Gas futures volume in electronic trading on the Nymex was 265,222 as of 2:37 p.m., compared with the three-month average of 321,000. Volume was 223,787 yesterday.

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

The relative-strength index for gas futures fell below 70 for the first time in four days, according to data compiled by Bloomberg. Some traders see readings above 70 as sell signals and figures at 30 or below as buy indicators.

“Temporary price support should wane with loosening balances as nuclear units return and as temperatures likely fall short of last year’s sweltering heat into the early part of the cooling season,” James R. Crandell, an analyst with Barclays Capital in New York, said in a note to clients today.

Temperatures will be below normal in the East and South this week before rising above normal next week, according to Matt Rogers, president of Commodity Weather Group LLC.

Warmer Weather

The 6- to 10-day forecast calls for warmer-than-typical weather to spread from the Great Lakesto the U.S. Gulf Coast and parts of the Southwest, Rogers said.

From May 9 to May 13, cold pockets will probably be confined to parts of the Pacific Northwest and sections of Montana and North Dakota.

Power plants use 30 percent of the nation’s gas supplies according to the Energy Department. Residential consumers account for about 20 percent.

U.S. nuclear-power output rose 2.1 percent from yesterday to 70,385 megawatts, or 69 percent of capacity, according to a Nuclear Regulatory Commission report and data compiled by Bloomberg. Production fell to 68,248 megawatts on May 2, the lowest level since 1999.

The department may say tomorrow that gas stockpiles gained 67 billion cubic feet in the week ended April 29, according to the median of 18 analyst estimates compiled by Bloomberg. The five-year average change for the week is an increase of 78 billion.

Lower nuclear production increased demand for natural gas by 2 billion to 3 billion cubic feet a day last week, according to Tim Evans, an energy analyst at Citi Futures Perspective in New York.

(Source: http://www.bloomberg.com/news/2011-05-04/natural-gas-falls-for-third-day-in-new-york-on-milder-weather.html)