Natural-Gas Futures Slip as Forecasts Spur Demand Worries

Published: May 07, 2013

--Natural gas slips as temperatures look set to rise

--Milder weather signals onset of shoulder season

--Demand from power plants weakens

By Dan Strumpf

NEW YORK--Natural-gas futures slipped under $4 Tuesday on forecasts for mild temperatures signaling waning demand as U.S. stockpiles continue climbing.

Natural gas for June delivery recently declined 2.4 cents, or 0.6%, to $3.987 a million British thermal units on the New York Mercantile Exchange.

Futures declined as traders focused on forecasts called for more mild spring weather in the coming weeks, meaning demand for natural gas used for heating is likely to decline to more-normal levels for this time of year.

Commodity Weather Group, a private forecaster, said it sees below-normal temperatures in the southern U.S. and parts of the East Coast over the next 10 days but more-normal spring temperatures are seen beyond that time.

Analysts said the falling demand is likely to result in progressively larger injections to U.S. natural-gas stockpiles, particularly since producers look set to maintain high gas output. Last week, a report from the Energy Information Administration showed a rebound in U.S. gas output in February, the latest month for which data are available.

"You're getting into the shoulder season where there's neither heating nor cooling" demand, said Bob Yawger, director of energy futures at Mizuho in New York. "You're going to start getting some of these bigger numbers now in the next couple of weeks."

Futures have fallen sharply from their 21-month high reached in late April, amid a steep decline in weather-driven gas demand. Analysts said futures are likely to remain under pressure until the rise in temperatures leads to a pick-up in electricity demand to fuel air-conditioning needs.

Meanwhile, the rise in prices above $4 had triggered a decline in demand from utilities. Last week, market-research firm Genscape said coal use at U.S. power plants rose 13% during the first four months of the year, while natural-gas demand fell 11%.

On Thursday, the market staged one of the biggest selloffs in recent memory, as futures declined more than 30 cents after the EIA said weekly stockpiles rose 43 billion cubic feet in a week, much larger than expected.

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $3.8625/MMBtu, according to IntercontinentalExchange, compared with Monday's average of $3.9278/MMBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $4.03/MMBtu, down from $4.0630/MMBtu.