Natural gas futures tumbled to an 11-week low as moderating heat forecast for the U.S. will cut air conditioner use and fuel demand from power plants.
Temperatures will be seasonal across most of the lower 48 states Aug. 26 through Aug. 30 following above-normal readings along the East and West coasts over the next five days, according to Commodity Weather Group LLC. The high in Boston on Aug. 27 will be 78 degrees Fahrenheit (26 Celsius), in line with the average, AccuWeather Inc. said on its website.
Gains in gas inventories will accelerate in the coming weeks with the waning summer heat, pressuring prices, according to Societe Generale SA and BNP Paribas SA. Surging production has helped stockpiles climb 21 percent faster than the five-year average since inventories began a seasonal increase in April.
“The weather is coming to an end, the heat is going to go away and we are still quite a ways from heating demand,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “I think that’s why the market is not going up. Production is still at high levels.”
Natural gas for September delivery fell 7.9 cents, or 2.9 percent, to $2.676 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since June 5. Futures dropped 4.5 percent this week, the biggest weekly loss since May 29.
“With the exit of core summer seemingly under way, we don’t see much on the immediate-term horizon to spark a shift in sentiment in gas,” Breanne Dougherty, a natural gas analyst for Societe General SA in New York, wrote in a note to clients Thursday.
Prices will bottom out in the fall, slumping to a range of $2.55 to $2.70, as inventories head toward record levels, she said. Gas futures have traded mostly between $2.60 and $2.95 since the start of the third quarter.
Hurricane Danny, a Category 3 storm in the Atlantic, is forecast to weaken as it approaches the Caribbean. Storms that move into the Gulf of Mexico can disrupt offshore energy production. The Gulf accounts for 4.3 percent of U.S. gas output.
“The weather right now, outside of certain areas, is not really above normal, so the market is reflecting demand and supply conditions at the moment,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami.
Gas stockpiles have expanded by 1.569 trillion cubic feet from the end of March to 3.03 trillion cubic feet on Aug. 14, a U.S. Energy Information Administration report Thursday showed. The five-year average for the same period is 1.299 trillion.
Inventories are on track to reach close to 4 trillion cubic feet by the end of the stockpiling season in the fall, Dougherty said. That would surpass the record of 3.929 trillion reached in November 2012.
Gas production is hovering near all-time highs. Output, based on wellhead data, was 80.43 billion cubic feet a day in the week ended Aug. 13 versus the record 80.48 billion reached in April, LCI Energy Insight data show. Gains this year have been driven by new wells and pipeline capacity coming online at the Marcellus deposit in the eastern U.S., according to the EIA.
“Production has been relatively resilient this summer,” Dougherty said. “This resiliency during such price weakness, when combined with the regional infrastructure debottlenecking efforts, supports our expectation for a slight uptick in Marcellus production as soon as Northeast heating loads start emerging.”