Natural Gas Tumbles Below $4 After Above-Forecast Inventory Gain

Jul 17, 2014 3:23 pm ET

July 17 (Bloomberg) -- Natural gas futures slumped below $4 per million British thermal units, dropping to a seven-month low, as a bigger-than-forecast supply gain eased concern that winter stockpiles will fall short of demand.

Inventories rose 107 billion cubic feet in the week ended July 11 to 2.129 trillion, the Energy Information Administration said today. Analyst estimates compiled by Bloomberg showed a gain of 100 billion, while a survey of Bloomberg users predicted an increase of 102 billion. It was the 13th consecutive week of above-average stockpile increases as mild weather cut demand from power plants during the peak season for air conditioning.

“In light of the very large builds in gas storage, including today’s, we’re seeing the possibility of a further deterioration in prices,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “This is the traditional peak of summer heat, and it’s just not materializing.”

Natural gas for August delivery fell 16.5 cents, or 4 percent, to $3.954 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Nov. 29. Gas slipped below $4 in intraday trading for the first time since Jan. 10. Volume for all futures traded was 87 percent above the 100-day average at 2:49 p.m. Prices are down 6.5 percent this year.

Narrower Deficits

The stockpile increase was bigger than the five-year average gain for the week of 65 billion cubic feet, according to the EIA, the Energy Department’s statistical arm. A deficit to the five-year average narrowed to 25.5 percent from 27.6 percent the previous week. Supplies were 22.2 percent below year-earlier inventories, compared with 24.4 percent in last week’s report.

“Traders will continue to look for more downside overnight and into tomorrow,” Allen Rather, an independent energy analyst in Victoria, Texas, said in a note to clients.

The weather may be cooler than average in the Southeast, Great Lakes and mid-Atlantic states through July 21, said Commodity Weather Group LLC in Bethesda, Maryland.

The high in Washington on July 20 may be 84 degrees Fahrenheit (29 Celsius), 5 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. Cleveland temperatures may reach 79 degrees, 3 below normal. Power plants account for 31 percent of gas consumption.

Marketed gas production may increase 4.1 percent to an all- time high of 73.08 billion cubic feet a day this year, the EIA said July 8 in its monthly Short-Term Energy Outlook. Stockpiles will rise to 3.43 trillion cubic feet by the end of October, which would be the least for that time of year since 2008.

Gas futures will trade near $4.50 per million Btu “over the next several years,” Kurt Hallead, co-head of global energy research at RBC Capital Markets LLC in Austin, Texas, said in a note to clients today.

“Despite natural gas storage at the lowest point in over 10 years, we think supply is ample, with production growth in key demand regions such as the Appalachian providing enough cushion for the heating season,” Hallead said.