Natural gas tumbles as temperatures set to rise

NEW YORK (Bloomberg) - Natural gas prices capped their biggest November drop since 2001 as forecasts showed no sign of the teeth-chattering U.S. cold needed to boost demand for the heating fuel.

The outlook for the second week of December turned warmer overnight, with temperatures now expected to be above normal across most of the contiguous U.S., according to forecaster Commodity Weather Group LLC. “The trends into mid-month should keep getting warmer” without evidence of a stronger high-pressure area that would allow frigid conditions to settle over the Lower 48, CWG said.

As gas output from shale basins climbs to fresh highs, the market needs a polar blast to help siphon off the excess supply. Though exports have soared to a record and American homes and businesses are using more of the fuel than ever, production is outstripping demand, leaving gas stored in depleted aquifers and salt caverns near a two-year high.

“The weather outlook continues to fall apart for December,” says John Kilduff, founding partner at Again Capital. “Futures broke some key support at the $2.50 level,” and they may now be heading for $2.20, he said.

Gas for January delivery fell 22 cents, or 8.8%, to $2.281 per million British thermal units on the New York Mercantile Exchange. Prices were down more than 13% in November, and the drop on Friday was the worst one-day slide since January. There was no settlement Thursday due to the U.S. Thanksgiving holiday and all transactions were booked Friday.

U.S. gas production rose to 1.5% in August to 112.879 billion cubic feet per day from a month earlier, according to a U.S. Energy Information Administration report Friday.