U.S. natural gas futures had the biggest one-day drop in eight months on forecasts for cooler weather that would suppress demand from power plants, derailing a rally.
Temperatures may be mostly normal in the lower 48 states from July 15 through July 19, according to Commodity Weather Group LLC. Earlier forecasts had shown higher-than-average readings from the Gulf Coast to Canada.
Forecasts for fading heat are dealing a blow to gas bulls after the best second-quarter gain in 16 years. Unless scorching temperatures boost electricity generation later this summer, a gas stockpile surplus to the five-year average will persist until the winter, pressuring prices lower.
“It was a pretty shocking shift,” said Kyle Cooper, director of research at IAF Advisors and Ion Energy in Houston. A rally will be difficult to sustain “unless you get some more supportive weather. We could go much lower.”
Futures for August delivery fell 22.3 cents, or 7.5 percent, to settle at $2.764 per million British thermal units on the New York Mercantile Exchange, the most since October 26, 2015. Futures gained 49 percent in the second quarter.
There was no settlement on the Nymex Monday because of the U.S. Independence Day holiday. Trades will be booked Tuesday for settlement purposes.
Gas stockpiles totaled 3.14 trillion cubic feet as of June 24, 25 percent above the five-year average for the period, according to the U.S. Energy Information Administration. The surplus narrowed for 12 straight weeks.