Natural gas futures posted the biggest one-day drop in seven weeks after U.S. stockpiles increased more than forecast last week.
Prices fell to a five-week low as the Energy Information Administration said inventories rose by 110 billion cubic feet in the week ended June 20 to 1.829 trillion. Analyst estimates compiled by Bloomberg showed an expected injection of 105 billion. Supplies have expanded by more than 100 billion cubic feet for seven consecutive weeks, the longest streak of triple-digit gains in data going back 20 years.
“We continue to underestimate the market’s ability to get gas into the ground,” said Stephen Schork, president of Schork Group Inc., a consulting company in Villanova, Pennsylvania. “It was a very large number and it was a bearish number.”
Natural gas for July delivery fell 15.3 cents, or 3.4 percent, to $4.40 per million British thermal units on the New York Mercantile Exchange, the lowest settlement price since May 22 and biggest percentage decline since May 8. Volume was 5.9 percent above the 100-day average at 2:49 p.m. The futures are down 2.9 percent this week and have gained 4 percent this year.
July futures expired today. The more active August contract fell 12.8 cents to $4.441 per million Btu.
Storage injections have outpaced five-year average gains for 10 consecutive weeks, EIA data show. A deficit to the average narrowed to 31 percent from 33 percent the previous week, today’s report showed. Supplies were 27.4 percent below year-earlier inventories, compared with 29.1 percent in last week’s report. The average stockpile gain for last week was 81 billion cubic feet.
The deficit will probably continue to shrink through July 11, Tim Evans, an energy analyst at Citi Futures in New York, said in a note to clients yesterday. He recommended going short August gas.
Production of the fuel will expand for the ninth straight year, allowing for a record amount of gas to flow into storage during the six-month stockpiling season, the EIA said in its June 10 Short-Term Energy Outlook. Supplies, which fell to 822 billion cubic feet in March, will rebound to 3.424 trillion by the end of October, which would be the lowest start to the peak heating-demand season since 2008.
To get there, supply gains have averaged 84 billion cubic feet per during the first 12 weeks of the refill season and will need to stay at that level for the next 19 weeks, government data show.
The next report will probably show a storage injection of 95 billion to 100 billion, based on weather and preliminary pipeline, storage and production data, said Luke Larsen, an analyst at LCI Energy Insight, an analysis and consulting company in El Paso, Texas. Larsen, who forecast that today’s report would show a stockpile gain of 109 billion cubic feet, sees storage climbing to 3.43 trillion by the end of October.
Output will increase 4 percent to 73 billion cubic feet a day in 2014, reaching an all-time high for the fourth consecutive year, as new wells come online at the Marcellus shale deposit in the Northeast, according to the June 10 report.
Forecasts showing heat emerging through early July will “likely limit these weekly injections,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “What’s really important to note is that even last year the industry ended up restocking less in the second half even with mild temperatures.”
Heat will build from the Midwest to the Northeast over the next five days, said MDA Weather Services in Gaithersburg, Maryland. Above-normal temperatures will recede to the East and West Coasts from July 1 through July 5 before sweeping most of the lower 48 states the following five days.
The high temperature in Washington on July 2 may be 96 degrees Fahrenheit (36 Celsius), 8 above normal, and New York City may be 7 higher than usual at 89 degrees, according to AccuWeather Inc. in State College, Pennsylvania.
Electricity generators account for 31 percent of gas consumption, peaking in the third quarter, according to the EIA.
“We are nearing end of this window of opportunity for buyers looking for low gas prices because as they get into the second half of the season, we see the market going higher,” Viswanath said.