Forexpros – Natural gas futures turned lower during U.S. morning hours on Tuesday, falling to the lowest levels of the session as market players continued to focus on bloated inventory levels in the U.S.
Market players continued to monitor weather forecasts for the rest of August to gauge the strength of future demand expectations for the fuel, as well as tropical storm activity in the Gulf of Mexico.
On the New York Mercantile Exchange, natural gas futures for delivery in September traded at USD2.740 per million British thermal units during U.S. morning trade, dropping 1.3%.
It earlier rose by as much as 2% to trade at a session high of USD2.836 per million British thermal units.
Total U.S. gas supplies stood at 3.241 trillion cubic feet as of last week, 16.8% above last year’s level and 13.5% above the five-year average level for the week, according to weekly supply data from the U.S. government.
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 33 billion cubic feet to 52 billion cubic feet, compared to last year’s build of 66 billion cubic feet. The five-year average change for the week is an increase of 53 billion cubic feet.
Meanwhile, updated weather forecasts predicted warmer weather was expected to return to key gas-consuming regions in the U.S. over the next two weeks.
Industry weather group WSI Energycast said temperatures “may trend even warmer than forecast” in some areas of the U.S. over the next 11 to 15 days.
Above-average summer temperatures increase the need for gas-fired electricity to cool homes, boosting 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 15% 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 Monday a storm system in the western Gulf of Mexico has a 30% chance of forming into a tropical cyclone in the next 48 hours, while another system in the Atlantic has a 80% chance of cyclone formation in the next 48 hours.
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.
From a technical standpoint, prices were expected to find strong near-term support close to the 200-day moving average of USD2.705.
200-day moving averages are considered key trading levels for many investors, often serving as a floor for prices after big declines.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in September rose 1.4% to trade at USD97.59 a barrel, while heating oil for September delivery climbed 1.2% to trade at USD3.129 per gallon.
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