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Forexpros – Natural gas futures moved lower during U.S. afternoon hours Monday, as forecasts showing cooler temperatures across much of the U.S. East Coast weighed on future demand expectations for the fuel.
Traders were also monitoring tropical storm activity in the Gulf of Mexico, amid concerns over a disruption to supplies from the region.
On the New York Mercantile Exchange, natural gas futures for delivery in September traded at USD2.737 per million British thermal units during U.S. afternoon trade, plunging 1.17%.
It earlier fell by as much as 1.95% to trade at a session low of USD2.716 per million British thermal units, the lowest since June 28.
Industry weather group MDA EarthSat forecast a “stronger shot of cool air” will spread across the Midwest over the next five days, leading to cooler-than-normal temperatures as the end of August approaches.
The weather group added that the outlook for the next 11-to-15 days shifted to being significantly cooler, particularly for northern and eastern states.
Cooler summer temperatures reduce the need for gas-fired electricity to power air conditioning, dampening demand for natural gas.
A bout of extreme heat across much of the U.S. over the past two months helped boost natural gas prices above the key USD3.00-level in recent weeks. Prices rallied to a 2012 high of USD3.275 per million British thermal units on July 31.
But futures have come under heavy selling pressure since the start of August, losing almost 14% after extended weather forecasts pointed to milder weather across most parts of the U.S. in the next two weeks.
Meanwhile, the U.S. National hurricane Center said earlier that the remains of Tropical Depression Seven had a 10% chance to regenerate over the central Caribbean in the next 48 hours.
The agency added that a low pressure system about 1,200 miles west-northwest of the Cape Verde Islands also had a 10% chance to develop further.
Production in federal waters in the Gulf of Mexico account for about 10% of natural gas output and prices typically spike when storms threaten production. The U.S. Atlantic hurricane season began on June 1 and ends November 30.
Last week, the National Oceanic and Atmospheric Administration raised its seasonal Atlantic storm forecast to 12 to 17 systems, up from nine to 15 predicted in May.
Concerns over bloated U.S. inventory levels have also dampened the appeal of the commodity. Total U.S. gas supplies stood at 3.241 trillion cubic feet last week, 16.8% above last year’s level and 13.5% above the five-year average level for the week.
Market analysts have warned that without strong demand through the rest of the summer cooling season, gas inventories will reach the limits of available capacity later this year.
Stocks peaked last year in November at a record 3.852 trillion cubic feet.
The storage surplus to last year will have to be cut by at least another 150 billion cubic feet in the 15 weeks left before winter withdrawals begin to avoid breaching the government’s 4.1 trillion cubic feet estimate of total capacity.
Early injection estimates for this week’s storage data range from 25 billion cubic feet to 40 billion cubic feet, compared to last year’s build of 43 billion cubic feet. The five-year average change for the week is an increase of 43 billion cubic feet.
From a technical standpoint, market participants noted that prices will have a hard time breaking back above the USD3.00-level.
The USD3.00-level is psychologically important to some traders, who see that price as the point at which power plants will begin switching from natural gas to coal.
Speculation that utility providers in the U.S. were switching from pricier coal to cheaper natural gas helped boost prices off a 10-year low of USD1.902 hit in mid-April.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in September fell 0.65% to trade at USD92.25 a barrel, while heating oil for September delivery eased down 0.05% to trade at USD3.018 per gallon.
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