Natural Gas Drops to 11-Week Low as Mild Weather Cuts Demand

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Natural gas futures slid to an 11-week low on forecasts for cooler weather that would limit power demand in the last weeks of summer.

Temperatures may be mostly average or below normal in the lower 48 states through Aug. 28, according to Commodity Weather Group LLC in Bethesda, Maryland. The high in Chicago on Aug. 26 may be 72 degrees Fahrenheit (22 Celsius), 9 less than usual, AccuWeather Inc. data show.

“It’s definitely cooler in the Midwest,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “The air conditioners that have been humming all summer are getting a little bit of a break.”

Natural gas for September delivery fell 2.6 cents to $2.65 per million British thermal units on the New York Mercantile Exchange, the lowest close since June 5. Volume for all futures traded was 2.9 percent above the 100-day average at 3:11 p.m.

The high in Cleveland on Aug. 26 may be 70 degrees Fahrenheit, 8 less than average, AccuWeather Inc. data show. Power plants account for about 33 percent of gas demand.

Gas stockpiles totaled 3.03 trillion cubic feet as of Aug. 14. By the end of the injection season on Oct. 31, supplies may total 3.867 trillion cubic feet, 1.8 percent above the five-year average, according to the U.S. Energy Information Administration.

Gas Output

Marketed gas production in the U.S. may climb 5.4 percent this year to a record 78.72 billion cubic feet a day, the EIA said Aug. 11 in its monthly Short-Term Energy Outlook. The agency cut its forecast for the average 2015 price at the benchmark Henry Hub in Erath, Louisiana, to $2.89 per million Btu from $2.97 in last month’s report.

The gap between U.S. and international prices for liquefied natural gas has narrowed with oil’s collapse, reducing the competitive advantage for U.S. export projects, Bank of America Corp. said in a note to clients Monday.

Prices at the Henry Hub in Erath, Louisiana, the benchmark for U.S. gas, would need to trade below $2 per million Btu “to be attractive for new European long-term contract buyers,” Max Denery, an analyst at the bank in New York, said in the report. Henry Hub gas would have to drop below $2.20 for U.S. LNG to win long-term Asian purchasers, Denery said.