U.S. natural gas futures dropped to the lowest price in more than two weeks as extreme heat faded from July weather forecasts, dimming the prospect of a rally to $3 per million British thermal units.
Temperatures may be mostly normal in the eastern half of the U.S. from July 16 through July 20, midday government outlooks showed. Meteorologists had previously predicted higher-than-average readings across the central and southern U.S. during that period.
A gas rebound in late June and early July fell short of $3 as the weather cooled, curtailing demand for the fuel from power plants. Futures have also dropped on speculation that higher gas prices are spurring a recovery in shale production and boosting utilities’ consumption of cheaper coal. Without intense summer heat, a gas inventory surplus may persist through the end of the year.
“If the heat doesn’t materialize, we’re going to have a growing surplus to the five-year average,” said Mariana Eizayaga, an associate analyst at Tradition Energy in Stamford, Connecticut. “There’s a chance we could exceed last year’s record storage levels.”
Futures for August delivery fell 9.9 cents, or 3.5 percent, to $2.702 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since June 24. Prices climbed to $2.998 on July 1, the highest since May 2015.
Gas consumption by electricity generators has dropped 2.3 percent this month, while output climbed 1.4 percent last week, the biggest gain since January, according to PointLogic Energy. Stockpiles totaled 3.179 trillion cubic feet as of July 1, 23 percent above the five-year average for the period, according to the U.S. Energy Information Administration.