Forexpros – Natural gas futures plunged to a three-week low on Friday, as forecasts showing cooler temperatures across much of the U.S. East Coast in the next two weeks weighed on future demand expectations for the fuel.
On the New York Mercantile Exchange, natural gas futures for delivery in September settled at USD2.784 per million British thermal units by close of trade on Friday. Earlier in the day, prices hit USD2.760, the lowest since July 17.
On the week, the front-month natural gas contract fell 2.1%, the third consecutive weekly decline.
Natural gas prices tumbled nearly 6% Friday after extended weather forecasts pointed to milder weather in the next two weeks.
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.
Meanwhile, traders continued to monitor tropical storm activity in the Gulf of Mexico, amid concerns over a disruption to supplies from the region.
Ernesto, formerly a hurricane, weakened to a tropical depression as it dissipated over the mountains of southern Mexico on Friday,
On Thursday, 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.
Production in federal waters in the Gulf accounts 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.
Concerns over bloated U.S. inventory levels continued to weigh on the commodity.
The U.S. Energy Information Administration said in its weekly supply report published Thursday that natural gas storage in the U.S. rose by 24 billion cubic feet last week.
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.
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.
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.
From a technical standpoint, market participants noted that prices have further room to fall after futures closed below the USD2.80-level for the first time in three weeks on Friday.
Elsewhere in the energy complex, light sweet crude oil futures for September delivery traded at USD93.35 a barrel by close of trade on Friday, jumping 2.2% on the week.
Heating oil for September delivery rose 4.15% over the week to settle at USD3.026 per gallon by close of trade Friday.
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