Natural gas futures tumbled the most in six years in New York as meteorologists predicted milder weather that would reduce demand for the heating fuel after a polar blast this week.
Gas slid 11 percent, the biggest drop since Aug. 20, 2007, after reaching a five-year high in intraday trading. A midday update to the National Weather Service’s Global Forecast System model showed higher temperatures than previously forecast in the Midwest from March 6 to March 10. Tomorrow is the last trading day for March options.
Futures have rallied 29 percent this year, the biggest gainer after coffee on the Standard & Poor’s GSCI Index of 24 commodities. Cold weather and winter storms have depleted gas stockpiles to the lowest level since 2004. Hedge funds increased bullish bets on natural gas for the fifth time in six weeks, the Commodity Futures Trading Commission said in a Feb. 21 report.
“There’s always downside risk with a change to milder weather,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “This is a weather-based market and we’re getting closer to spring.”
Natural gas for March delivery slumped 69 cents to settle at $5.445 per million British thermal units on the New York Mercantile Exchange. The price reached $6.493 in intraday trading, the highest level since Dec. 2, 2008. Volume was 54 percent above the average at 2:36 p.m.
March gas traded 82.5 cents above the April contract, compared with $1.123 on Feb. 21.
March $6 calls were the most active options in electronic trading. They were 29.9 cents lower at 2.4 cents per million Btu on volume of 3,479 at 2:36 p.m. Calls accounted for 69 percent of trading volume.
Implied volatility for April at-the-money options was 48.55 percent at 2:36 p.m., compared with 32.05 percent a year ago for April 2013 options.
“This selloff appears to be the result of the liquidation of long positions ahead of the options expiration,” said Teri Viswanath, the director of commodities strategy at BNP Paribas SA in New York.
Money managers’ net-long natural gas positions, or wagers on rising prices, jumped 5 percent in the seven days ended Feb. 18, to the highest level since May, CFTC data show.
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 low in Kansas City, Kansas, on March 9 may be 35 degrees Fahrenheit (2 Celsius), 2 above normal, according to AccuWeather Inc. in State College, Pennsylvania. About 49 percent of U.S. households use gas for heating, according to the Energy Information Administration, the Energy Department’s statistical arm.
Gas stockpiles totaled 1.443 trillion cubic feet in the week ended Feb. 14, the least for that period since 2004, EIA data show. Supplies were at a record deficit of 34 percent to the five-year average.
Gas inventories at the end of March, when the heating season draws to a close, will drop to 1.33 trillion cubic feet, the lowest level since 2008, the EIA said Feb. 11 in its monthly Short-Term Energy Outlook.
Output in 2014 may climb 2.2 percent to a record 71.76 billion cubic feet a day, gaining for a ninth consecutive year, the agency said in the report.