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Natural Gas Drops to 16-Week Low on Above-Forecast Supply Gain

June 27, 2013

June 27 (Bloomberg) -- Natural gas futures fell to the lowest price in 16 weeks in New York after U.S. stockpiles increased more than forecast.

Gas tumbled as much as 4.8 percent as the Energy Information Administration said inventories rose 95 billion cubic feet in the week ended June 21 to 2.533 trillion cubic feet. Analyst estimates and a survey of Bloomberg users both showed a 90-billion increase. Supply gains have topped five-year averages for four straight weeks as mild weather reduced demand.

"Today’s inventory report is a reflection of the fact that we have very sluggish demand picture right now," said Dominick Chirichella, senior partner at the Energy Management Institute in New York. "I don’t see a significant call on natural gas for power generation to meet cooling needs because cooling needs aren’t going to be all that high."

Natural gas for August delivery dropped 17.7 cents, or 4.7 percent, to $3.56 per million British thermal units at 2:10 p.m. on the New York Mercantile Exchange after sinking to $3.556, the lowest intraday price for a front-month contract since March 7. Trading was 21 percent above the 100-day average for the time of day. Prices have risen 6.7 percent this year.

The discount of August to October futures widened 0.2 cent to 1.3 cents.

September $3 puts were the most active options in electronic trading. They rose 0.9 cent to 2.2 cents per million Btu on volume of 1,958 at 2:05 p.m. Puts accounted for 70 percent of trading volume. Implied volatility for at-the-money options expiring in August was 31.19 percent at 2 p.m., compared with 31 percent yesterday.

 

Average Gains

 

The stockpile increase was bigger than the five-year average gain for the week of 79 billion cubic feet, according to the EIA, the Energy Department’s statistical arm. Supplies expanded by 58 billion a year earlier.

A deficit to the five-year average narrowed 1.2 percent from 1.9 percent the previous week. Inventories were 17.1 percent below year-earlier levels compared with 18.7 percent in last week’s report.

Gas prices have slumped 20 percent from a 21-month high of $4.444 per million Btu on May 1 as unseasonable heat was replaced by milder weather, limiting demand for the power-plant fuel to run air conditioners.

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