Natural Gas Caps Weekly Decline as Peak Summer Heat Wanes

Aug 15, 2014 2:55 pm ET

Aug. 15 (Bloomberg) -- Natural gas futures fell in New York, capping the first weekly decline since July, on speculation that waning summer heat will allow more of the fuel than normal to move into storage.

Forecasts turned cooler for the U.S., with a spell of above-normal temperatures pushing primarily across the Midwest from Aug. 20 through 24, said Commodity Weather Group LLC. Gas stockpiles have rebounded at a record pace after dropping to an 11-year low in March as mild weather cut air-conditioning needs.

“As we get into the second half of the month, even much- above temperatures are simply not going to be enough to increase electric power demand and lessen our storage injections,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “We are seeing monthly injections that far exceed the five-year maximum levels. We think that will last through September.”

Natural gas for September delivery fell 13 cents, or 3.3 percent, to $3.776 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since July 28. Volume for all futures traded was 2.3 percent above the 100-day average at 2:34 p.m. Prices slid 4.7 percent this week, the biggest drop in four weeks, and are down 11 percent this year.

The East Coast will see seasonal weather during the second half of this month, a revision from previous forecasts calling for two weeks of above-average temperatures, said Commodity Weather in Bethesda, Maryland.

Mild Weather

The high in New York City on Aug. 19 may be 77 degrees Fahrenheit (25 Celsius), 5 below normal, while Dallas will see 97 degrees, 1 above normal, according to AccuWeather Inc. in State College, Pennsylvania. Power plants account for 31 percent of U.S. gas demand, peaking in the third quarter.

Gas inventories in the lower 48 states have expanded by 1.645 trillion cubic feet during the first 19 weeks of the storage injection season to 2.467 trillion in the week ended Aug. 8, the fastest rate of increase for the period in U.S. Energy Information Administration data going back to 1994.

Supply gains topped the five-year average for 17 of those weeks, narrowing a deficit to the average to 19 percent from a record 55 percent in late March.

Record production will help boost gas supplies to 3.463 trillion cubic feet by the end of October, according to the EIA. To get there, an average of 83 billion will need to flow into storage in each of the remaining 12 weeks of the stockpiling season. Weekly gains have averaged 87 billion so far.

“The strong pace of injection continues to undermine any rally,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today. “The ultimate low point for the current phase probably will not be much lower than $3.10, so value buying should occur in the $3.50 area and below.”