Natural Gas Drops a Second Day as Heat in U.S. East to Retreat

Sep 03, 2014 2:51 pm ET

Sept. 3 (Bloomberg) -- Natural gas futures fell for a second day in New York on speculation that milder weather will reduce demand for power generation.

Forecasts turned cooler for central and eastern states from Sept. 8 through Sept. 17 with below-normal readings in the Midwest, said MDA Weather Services. Gas stockpiles have climbed fast enough to cut a supply deficit to weekly five-year averages to 17 percent from a record 55 percent at the end of March.

“You are seeing the removal of expectations that we are going to see some seasonal demand for the middle part of September,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “You are seeing confidence that we are going to erase more of this deficit and we are not worried about what kind of winter we will see.”

Natural gas for October delivery slipped 4.3 cents, or 1.1 percent, to $3.847 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Aug. 22. Volume for all futures traded was 7.1 percent above the 100-day average at 2:37 p.m. Gas is down 9.1 percent this year.

Prices jumped to a six-week high Aug. 29 on predictions for a surge of late summer heat, and dropped 4.3 percent yesterday, the biggest decline since Feb. 26, as forecasts showed lower temperatures.

The weather will be hotter than normal across the East Coast, Midwest, South and West Coast over the next five days, said MDA in Gaithersburg, Maryland. Cool air from Canada will push into the Rockies and the Great Plains next week.

Falling Temperatures

The high in Chicago tomorrow will be 85 degrees Fahrenheit (29 Celsius), 6 above normal, before dropping a week later to 70, according to AccuWeather Inc. in State College, Pennsylvania. Power plants account for 31 percent of U.S. gas consumption.

Gas inventories in the lower 48 states probably rose 74 billion cubic feet last week, based on the median of 17 analyst estimates compiled by Bloomberg. Estimates ranged from gains of 61 billion to 78 billion. The five-year average increase for the seven days is 56 billion. The U.S. Energy Information Administration is scheduled to release its weekly gas supply report tomorrow.

Stockpiles expanded by 1.808 trillion cubic feet since the first storage injection was reported in April to 2.63 trillion on Aug. 22, EIA data show. Weekly gains reached or exceeded 100 billion cubic feet nine times before flows slowed as hotter weather boosted demand to power air conditioners.

“Going forward, if we stay below 90 on the injection levels, the market is probably not going to go down too far; it’s going to hang in there,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami.