Forexpros – Natural gas prices plunged more than 4% on Friday, hitting an almost four-week low as moderate weather forecasts continued to weigh on demand expectations for the fuel.
On the New York Mercantile Exchange, natural gas futures for delivery in July settled at USD2.324 per million British thermal units by close of trade on Friday. Earlier in the day, prices touched USD2.314, the lowest since May 8.
On the week, prices retreated 9.18%, the second consecutive weekly decline.
Natural gas prices have been on the decline since touching a three-month high of USD2.820 on May 21. Front-month gas future contracts on the NYMEX have fallen in each of the past seven sessions, losing approximately 17.5%.
Technical traders attributed the downward movement to a shaky technical chart outlook, after the market failed to break above key resistance close to USD2.820 a number of times.
Despite the recent run of losses, natural gas prices are still up 18% since touching a decade-low of USD1.902 on April 19, amid indications major North American natural gas producers were cutting back on production.
Speculation that utility providers in the U.S. were switching from pricier coal to cheaper natural gas provided further support over recent weeks.
However, market players noted that sustained prices back above USD2.50 and toward the USD3.00-level likely would inspire some switching back to coal.
Analysts at Citibank said in a report Friday that the natural gas market is “falling back to a more conservative valuation, amid concern that the higher price levels from two weeks ago may have led to some loss of demand from power utilities who may have switched on some coal-fired units.”
Meanwhile, cooler weather forecasts and lower temperatures weighed on the commodity after meteorologists predicted normal or below-normal temperatures in the eastern half of the U.S. throughout the first two weeks of June.
Lower-than-average temperatures on the West Coast are also expected to limit early-summer air-conditioning use.
Demand for natural gas tends to fluctuate in the summer based on hot weather and air conditioning use.
Average or below-average summer temperatures decrease the need for gas-fired electricity to cool homes, dampening demand for natural gas.
Meanwhile, traders remained concerned over elevated U.S. storage levels. The U.S. Energy Information Administration said last week that natural gas storage in the U.S. rose by 71 billion cubic feet 2.815 trillion cubic feet last week, 35% above both last year and the five-year-average level for this week.
Early injection estimates for this week’s storage data range from 45 billion cubic feet to 80 billion cubic feet, compared to last year’s build of 81 billion cubic feet. The five-year average change for the week is an increase of 99 billion cubic feet.
Natural gas traders shrugged off a report from industry research group Baker Hughes on Friday, showing that the number of active rigs drilling for natural gas in the U.S. last week fell by six to 588, the lowest in 12 years.
The gas rig count is more than 35% below last year’s level, fuelling hopes that major North American natural gas producers were beginning to curb output in response to declining prices.
Despite lower production levels, U.S. gas inventories remain at a record high for this time of year, after one of the warmest winters on record reduced demand for the heating fuel during its peak season.
Elsewhere in the energy complex, light sweet crude oil futures for July delivery traded at an eight-month low of USD83.28 a barrel by close of trade on Friday, plunging 8.8% on the week.
Heating oil for July delivery fell 6.61% over the week to settle at USD2.642 per gallon by close of trade Friday. Earlier in the day, prices touched USD2.609, the lowest since January 26, 2011.
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