Natural Gas Futures in New York Fall as Mild Weather Cuts Cooling Demand

Natural gas futures slipped in New York for the first time in four days on concern that demand for the fuel may decline after data showed U.S. industrial production unexpectedly stalled in April.

Gas dropped 3.2 percent after the Federal Reserve reported output at factories, mines and utilities was unchanged following a 0.7 percent gain in March. Industrial consumers account for 28 percent of the nation’s gas demand, according to Energy Department estimates.

“The domestic industrial production number is really weighing on the market,” said Jason Schenker, the president of Prestige Economics in Austin, Texas. “The implication is that weaker industrial output could sap some gas demand.”

Natural gas for June delivery fell 13.6 cents, or 3.2 percent, to settle at $4.182 per million British thermal units on the New York Mercantile Exchange. Prices have fallen 5.1 percent this year.

The data reflected a decline in automobile output as the Japanese earthquake and tsunami disrupted supplies, the Federal Reserve said. Economists had forecast a 0.4 percent gain in industrial production, according to the median estimate in a Bloomberg News survey.

Capacity utilization, which measures the amount of a plant that is in use, fell to 76.9 percent last month from 77 percent in March. The gauge compares with the average of 79.5 percent over the past 20 years.

Cooler Weather

Gas also slid as cool weather reduced demand for gas-fired electricity to run air conditioners. Forecasters including Commodity Weather Group LLC in Bethesda, Maryland, said temperatures will be below normal in parts of the Midwest, Southeast and Northeast through May 21.

Power plants use 30 percent of the nation’s gas supplies, according to the Energy Department.

“There is not an abundance of confidence in gas with the cool weather,” said Brad Florer, a trader at Kottke Associates Inc., an energy trading firm in Louisville, Kentucky. “We’ve been in this overall shrinking consolidation for months.”

The high temperature in Boston on May 21 may be 63 degrees Fahrenheit (17 Celsius), 5 below normal, according to AccuWeather Inc. in State College, Pennsylvania. The high in Chicago may be 73 degrees, matching the normal temperature.

Cooling demand in the Northeast may be below-normal through May 21, David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri, said in a note to clients today.

Nuclear Power

U.S. nuclear-power production rose 1 percent as operators boosted reactors in Illinois, Georgia, Florida and Louisiana, the Nuclear Regulatory Commission said. Higher atomic output can reduce the demand for natural gas in power plants.

Nuclear power generation nationwide increased 776 megawatts from yesterday to 76,730 megawatts, or 76 percent of capacity, according to an NRC report today and data compiled by Bloomberg. Twenty-six of the nation’s 104 reactors were offline.

Exelon Corp. (EXC) boosted the 882-megawatt Quad Cities 2 reactor on the Illinois side of the Mississippi River to 100 percent of capacity from 85 percent yesterday. Another unit at the site, the 882-megawatt Quad Cities 1, is shut. The plant is located about 20 miles (32 kilometers) northeast of Moline.

Gas futures volume in electronic trading on the Nymex was 230,595 as of 2:40 p.m., compared with the three-month average of 307,000. Volume was 253,975 yesterday. Open interest was 955,823 contracts. The three-month average open interest is 945,000.

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

(Source: http://www.bloomberg.com/news/2011-05-17/natural-gas-futures-fall-as-mild-weather-reduces-cooling-demand.html)