July 15 (Bloomberg) -- Natural gas futures slipped in New York on forecasts that a heat wave this week will give way to moderating weather later in the month that would limit consumption of the fuel by power plants.
Gas dropped as much as 2.7 percent as Commodity Weather Group LLC in Bethesda, Maryland, said above-normal temperatures in the Northeast this week would be replaced by cooler weather. The high in New York on July 22 may be 84 degrees Fahrenheit (29 Celsius), matching the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures will rise into the 90s this week in New York.
"The weather forecasts are moderating and taking away some support for gas prices," said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. "There hasn’t been a lot of certainty around the temperature outlook."
Natural gas for August delivery fell 5.7 cents, or 1.6 percent, to $3.587 per million British thermal units at 1:38 p.m. on the New York Mercantile Exchange. Trading volume was 13 percent below the 100-day average. The futures rose as high as $3.689 in earlier trading before retreating. Prices have climbed 7 percent this year.
The discount of August to October futures narrowed 0.3 cent to 1.1 cents.
October $2.70 puts were the most active options in electronic trading. They were 0.1 cent higher at 0.8 cent per million Btu on volume of 3,085 at 1:39 p.m. Puts accounted for 56 percent of trading volume. Implied volatility for at-the- money options expiring in August was 30.19 percent at 1:30 p.m., compared with 28.22 percent on July 12.
Hedge funds reduced net-long wagers on four U.S. natural gas contracts for a sixth week in the seven days ended July 9, the Commodity Futures Trading Commission said July 12.
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
The high in Chicago on July 22 may be 81 degrees Fahrenheit, 3 below normal, AccuWeather data show.
Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.
Gas inventories totaled 2.687 trillion cubic feet in the seven days ended July 5, the EIA said July 11. Supplies were 0.8 percent below the five-year average and 14.2 percent below year- earlier stockpiles. The deficit to the five-year average has declined from 6.2 percent in the week ended April 26.
"Storage levels will continue to increase markedly over the coming months, setting up a run at $3 and possible lower," Mike Fitzpatrick, editor of The Energy OverView newsletter in New York, wrote today.
Lower-48 state natural gas output climbed to a five-month high in April as wells were brought online in the Northeast, Texas and New Mexico, government data showed last month.
Gross gas production in the contiguous states rose 0.8 percent to 73.24 billion cubic feet a day, the most since November, from a revised 72.67 billion in March, the EIA’s monthly EIA-914 report showed June 28.
The U.S. met 89 percent of its own energy needs in March, the highest monthly rate since April 1986, EIA data show.
--With assistance from Asjylyn Loder in New York. Editors: Bill Banker, Justin Carrigan
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