June 30 (Bloomberg) -- Natural gas fell in New York a second day on skepticism the economy will recover fast enough to soak up excess supply.

The International Energy Agency yesterday said U.S. gas production expanded 4 percent in the “early months” of this year. U.S. stockpiles are 22 percent above the five-year average for this time of year, according to the Energy Department.

“Right now you don’t have very much demand,” said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. “You’re very well supplied.”

Natural gas for August delivery fell 10.9 cents, or 2.8 percent, to settle at $3.835 per million British thermal units at 3:19 p.m. on the New York Mercantile Exchange. Gas is down 72 percent from a 2008 high of $13.694 per million Btu reached on July 2.

Inventories of natural gas rose to 2.651 trillion cubic feet in the week ended June 19, the Energy Department said on June 25. The department is scheduled to release its inventory report for last week on July 2.

Stockpiles may reach a record before demand picks up with colder weather. The high to start the heating season, when demand outstrips production, is 3.545 trillion cubic feet reached on Nov. 2, 2007.

‘Pretty Remote’

“In order to cut that down it would take many, many weeks of hot weather, and not just in the South, but across the country,” or multiple hurricanes, said Martin King, an analyst at Calgary-based brokerage FirstEnergy Capital Corp. “The odds of that happening are pretty remote.”

Higher temperatures lift demand for power from gas-fired plants to run air conditioners. Hurricanes that enter the Gulf of Mexico can disrupt production from offshore gas platforms. The hurricane season started June 1 and ends Nov. 30.

“Demand shows few signs of significant growth,” Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York, said in a note to clients. “Now that the heat has passed and storms remain disorganized, the glaringly weak fundamentals confront market participants.”

Total gas use in the U.S. is forecast to fall 2.2 percent this year from 2008, the department said June 9 in its monthly Short-Term Energy Outlook. Power generation accounts for 29 percent of U.S. gas consumption.

“Demand is poor, storage is full and it’s injection season, and the market will hinge upon major weather events like extended or sustained heat waves and tropical storm activity,” Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut, said in a report.

Normal to below-normal temperatures are probable for much of the U.S., except parts of Texas and Louisiana, through July 9, according to forecaster MDA Federal Inc.’s EarthSat Weather. Mild weather in the Northeast and Midwest has stifled demand for natural gas.

To contact the reporter on this story: Mario Parker in Chicago at mparker22@bloomberg.net.

Last Updated: June 30, 2009 16:10 EDT