Natural Gas Drops to 2-Week Low as Cooler Weather to Cut Demand

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Natural gas futures dropped to a two-week low on forecasts for mild weather at the end of June that would curtail demand from power plants.

Temperatures may be mostly normal or below average in the eastern two-thirds of the U.S. from June 27 through July 6, Commodity Weather Group said. Marketed gas production will advance 5.7 percent from 2014 to a record 78.96 billion cubic feet a day, government estimates show.

“The bias is lower based on forecasts for moderate weather over the next 10 days,” said Gene McGillian, senior analyst and broker at Tradition Energy in Stamford, Connecticut. “Without hot weather, production levels are strong enough to keep downward pressure on the market.”

Natural gas for July delivery fell 8.3 cents, or 3 percent, to $2.733 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since June 8. Volume for all futures traded was 7.5 percent below the 100-day average at 2:40 p.m. Prices have dropped 5.3 percent from a month ago.

The high in New York on June 28 may be 72 degrees Fahrenheit (22 Celsius), 10 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. Chicago’s temperature may climb to 77 degrees, 6 below normal.

Power plants account for 33 percent of U.S. gas demand, Energy Information Administration data show.

“The natural gas futures are under some selling pressure after the temperature outlook cooled over the weekend, with above-average storage injections now likely in the coming weeks,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients Monday.

Above Average

Gas inventories totaled 2.433 trillion cubic feet as of June 12, 43 percent above last year’s level for the period and 1.9 percent higher than the five-year average, EIA data show. Output will probably continue to grow through 2016 as a backlog of drilled wells is completed in the Marcellus shale formation in the Northeast, the agency said June 9 in its monthly Short-Term Energy Outlook report.

Money managers’ net-short positions in U.S. natural gas decreased 23 percent to 75,742 in the week ended June 16, the Commodity Futures Trading Commission said June 19 in its weekly Commitments of Traders report. The measure includes an index of four contracts adjusted to futures equivalents. Nymex gas rose 1.7 percent to $2.894 per million Btu in the report week.

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