Natural gas futures drop as milder U.S. weather cuts fuel demand

Natural gas fell for a second day in New York on speculation that stockpiling may accelerate as milder weather reduces fuel use.

Gas dropped 1.3% as MDA Weather Services predicted seasonal or higher temperatures for most of the lower 48 states from April 19 through April 28. Prices jumped to a one-month high previous week after a government report showed that U.S. inventories rose by less than half the normal rate. Frigid weather this year sent supplies to an 11-year low in March.

“Most thermostats have been turned off or down and natural gas usage is starting to fall off in terms of heating,” said Ellen Stamm, global natural gas analyst at Schneider Electric in Louisville, Kentucky. “This week people are anticipating a larger injection. That is lending downside potential.”

Natural gas for May delivery fell 6 cents to $4.56 per MMBtu on the New York Mercantile Exchange, the lowest settlement since April 8. Volume for all futures traded was 49% below the 100-day average. Gas has gained 7.8% this year.

Unusually cold air from the Great Plains through the East Coast over the next five days will subsequently ease for the rest of the month, said MDA in Gaithersburg, Maryland.

The high in Manhattan on April 16 will drop to 51 degrees Fahrenheit, 11 below normal, before climbing a week later to 68 degrees, 4 above average, according to AccuWeather in State College, Pennsylvania.

About 49% of U.S. households use gas for heating, while power plants account for 31% of gas demand, according to the U.S. Energy Information Administration, the Energy Department’s statistical arm. Gas consumption slumps after the heating season ends and before hotter weather drives air-conditioning needs.

Inventories rose by 4 Bcf in the week ended April 4 to 826 bn, below the five-year average gain of 9 bn for the period, EIA data show. Stockpiles were at an 11-year low in the previous seven days.

Tapering heating demand means stockpile gains probably accelerated to 20 Bcf last week, Stamm said. Tim Evans, an energy analyst at Citi Futures in New York, estimated an increase gain of 36 bn, according to an April 11 note to clients. The five-year average increase for period is 37 bn.

The EIA’s next weekly stockpile report is scheduled for release on April 17.

Record gas production will help boost stockpiles to 3.422 Tcf by the end of October, which would be the lowest level before the start of the peak heating demand season since 2008, according to the EIA’s April 8 Short-Term Energy Outlook. The increase means a record 2.6 Tcf of gas will flow into storage, toppling the 2001 injection rate of 2.402 tn.

Under normal summer weather, increased shipments from the Marcellus shale deposit in the Northeast “should be sufficient” to rebuild supplies for next winter without significant new gas drilling, Jeffrey Currie, an analyst with Goldman Sachs Group, said in a note to clients dated 13 April, 2014. The bank’s three-month forecast for gas prices is $4.50 per MMBtu.

The current “uninspiring price environment” at a time when the gas industry is focused on being financially conservative has kept even more pure gas plays on the sidelines, Currie said. “As a result, a hot summer would likely trigger a strong increase in U.S. natural gas prices.” It would take a move up to $5.75 to $6.50 in gas prices to draw rigs away from oil drilling in the current crude environment of $100 a bbl, he said.

Output from the Marcellus shale will average 14.773 Bcf a day in May, up from 14.52 bn in April, the EIA said in its monthly Drilling Productivity Report.

The government estimates that total U.S. marketed gas production will expand for the ninth straight year, rising to a record 72.29 Bcf a day.

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