Natural Gas Trades Near 7-Month Low on Weather OutlookNaureen S. Malik
Natural gas futures capped the fifth straight weekly decline, the longest streak of losses in almost two years, as mild weather allowed above-average gains in U.S. inventories.
Heat expected to sweep the lower 48 states next week will be less intense than previously predicted, according to forecasters including MDA Weather Services. Eastern readings will be seasonal or mild heading into August. Gas inventories, which dropped to an 11-year low in March, have rebounded at the fastest pace since 2001 during first 15 weeks of the storage refill season, government data show.
“Weather maps continue to look bearish,” said Brison Bickerton, head of strategy at Freepoint Commodities LLC in Stamford, Connecticut. “Weather forecasts now take us past the normal peak of summer heat. The risk of a summer peak power load spike is rapidly diminishing.”
Natural gas for August delivery fell 0.3 cent to $3.951 per million British thermal units on the New York Mercantile Exchange, the lowest settlement since Nov. 27. Volume for all futures traded was 35 percent below the 100-day average at 3:12 p.m. Gas slid 4.7 percent this week and is down 6.6 this year.
Above-normal temperatures in the East next week won’t be as persistent as previous projections showed, said MDA in Gaithersburg, Maryland. Instead, the second half of the week “may struggle to regain” the highs seen in the first half, the forecaster said.
The high in New York City on July 23 will be 89 degrees Fahrenheit ( Celsius), 5 above normal, before dropping five days later to 74, 10 below average, according to AccuWeather Inc. in State College, Pennsylvania.
Electricity generators account for 31 percent of U.S. gas consumption, peaking in the third quarter, data show from the Energy Information Administration.
“Next week’s limited heat might mark the peak of the market,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “As cooling demand begins to ebb, there is a possibility for more price deterioration.”
Institutional investors have been reducing bullish wagers on natural gas over the past several weeks and this trend will continue as weekly storage injections pick-up, she said.
Gas inventories have climbed by 1.307 trillion cubic feet since the first post-winter storage injection to 2.129 trillion cubic feet in the seven days ended July 11, an EIA report yesterday showed. A supply deficit versus the five-year average narrowed to 25.5 percent from a record 54.7 percent in late March after gas flows into storage caverns topped the normal rate for 13 straight weeks.
The government estimates that stockpiles will climb to 3.431 trillion cubic feet by the end of October as shale drilling drives output to a record for the fourth straight year, according to its July 8 Short-Term Energy Outlook. To get there, inventories will need to increase by 77 billion cubic feet per week in the remaining 16 weeks of the refill season before heating demand begins to draw down supplies. Weekly gains have averaged 87 billion so far.
Marketed gas production may increase 4.1 percent to an all-time high of 73.08 billion cubic feet a day this year, the EIA’s monthly report showed. Stockpiles will rise to 3.43 trillion cubic feet by the end of October, which would be the least for that time of year since 2008.
The relative strength index, a technical indicator based on price momentum, fell to 26.5 at 2:48 p.m., the least since Jan. 23, 2012. A dip below 30 is seen by some traders as a technical signal to buy.
“The market is truly ugly at this moment,” Viswanath said. “While recognizing that the weather this summer has lessened the inventory supply risk next winter, we remain optimistic that supportive fundamentals will shortly re-emerge.”