Mild spell easing natural gas costs

Mercury rise sends prices to 3-month low

December 27, 2006|By Bloomberg News

Natural gas posted its biggest price decline in three months in New York as mild weather blanketed the United States from Chicago to the East Coast at a time when demand for the fuel typically rises.

Temperatures will remain above normal across the biggest gas-consuming regions, covering most of the eastern half of the United States through Jan. 4, MDA Federal's EarthSat Energy Weather forecaster said yesterday. Mild weather has trimmed demand for supplies stored in underground caverns that utilities draw on to meet the winter heating needs of customers.

"It looks like above-normal temperatures for the next two weeks," said Edward Kennedy, a broker at Commercial Brokerage Corp. in Miami. "There's plenty of gas in storage; let's face it, demand is off."

Gas for January delivery dropped 52.2 cents, or 7.9 percent, to $6.113 per million British thermal units on the New York Mercantile Exchange. The price earlier touched $6.06, the lowest since Oct. 16.

Yesterday's decline is the biggest since Sept. 14 and the lowest closing price since Oct. 13. Prices have dropped 31 percent this month and are down 46 percent this year.

Temperatures in Chicago and New York may be more than 8 degrees Fahrenheit above normal through Jan. 9, MDA EarthSat Energy said. New York may see temperatures soar through the weekend with a high of 57 degrees predicted for Dec. 31, according to Intellicast.com.

The lack of cold weather has meant utilities have had to dip less into storage caverns to meet heating demand.

Stored inventories probably fell 70 billion cubic feet to 80 billion cubic feet last week, said Carl Neill, an energy analyst at Risk Management Inc. in Chicago. Inventories fell 158 billion cubic feet in the corresponding week a year earlier, according to data compiled by Bloomberg.

"Right now the market is totally focused on weather and supply, and we have a lack of weather and a huge amount of supply," Neill said.

The mild weather has left gas sitting in storage sites. Total U.S. inventories stood at 3.167 trillion cubic feet as of Dec. 15, the Energy Department said last week. The excess compared with a year ago jumped to 12 percent from 8.2 percent a week earlier.

The gas inventory report for last week from the Energy Department will be delayed until 10:30 a.m. Friday, a day later than normal because of the Christmas holiday.

Demand for heating will average 21 percent below normal across the U.S. today through Jan. 2, forecaster Weather Derivatives said. Heating demand in the Northeast and northern Midwest will be 26 percent below normal, the Belton, Mo.-based researcher said.

The long-range outlook from U.S. weather forecasters suggests that there will be ample supplies of natural gas to meet heating demand.

The northern half of the United States will experience warmer-than-normal weather from January through March as an El Nino weather pattern peaks, government forecasters said in an outlook Thursday.

The highest temperatures, relative to average, will cover the Northern Plains and Midwest, the U.S. Climate Prediction Center said. Above-average temperatures were expected to stretch from coast to coast during the three-month period and even extend to Alaska, the forecasters said.

El Nino refers to the warming of the ocean surface off the western coast of South America. The phenomenon affects the jet stream, alters storm tracks and creates unusual weather patterns.

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