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Nov 28, 2012

U.S. GAS: Futures Slump as Outlooks Predict Mild Temperatures

Published: Nov 28, 2012

By Jerry A. DiColo 

NEW YORK--Natural gas futures dropped Wednesday to the lowest level in two weeks as investors braced for milder U.S. temperatures.

Natural gas for December delivery fell 9.2 cents, or 2.4%, to recently trade at $3.677 a million British thermal units on the New York Mercantile Exchange.

The December contract expires at settlement Wednesday, and analysts said they expected a volatile session amid the switch to January as the front-month contract.

Natural-gas for January delivery was recently 10.3 cents lower at $3.789/MMBtu.

Prices fell as forecasters continue to predict a jump in temperatures over the next week. MDA EarthSat, a private weather forecaster, is expecting a "very warm period" across the U.S. for the next six-to-ten days.

More than half of U.S. homes are heated with natural gas, while many more use electric heat generated at gas-fired power plants. The forecasts suggest that homes and businesses will cut back on heating amid warmer weather, lowering demand for the fuel.

"Some of the forecasts appear more bearish this morning," said Jim Ritterbusch, head of trading advisory Ritterbusch and Associates, in a client note. He added that prices may continue to decline without a move towards colder temperatures.

Natural-gas prices have posted steady gains through summer and autumn this year, rebounding from decade lows hit in April. Hotter-than-normal weather this summer raised natural-gas demand, helping to lower a massive U.S. supply glut.

Last week, natural-gas stockpiles fell by 38 billion cubic feet to 3.873 trillion cubic feet, just 4.5% above the five-year average for this time of year. In March, stockpiles were roughly 60% above average.

Many investors have already turned their attention to this week's storage report, due at 10:30 a.m. EST Thursday. Early estimates point to a withdrawal from storage. This time last year, inventories increased.

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $3.71/MMBtu, according to IntercontinentalExchange, compared with Tuesday's average of $3.7707/MMBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $5.30/MMBtu, down from $5.3242/MMBtu.

Write to Jerry A. DiColo at [email protected]