Forexpros – Natural gas futures suffered under heavy selling pressure during U.S. afternoon trade Tuesday, giving back nearly 5% as nervous investors took profits from Monday’s rally..
Forecasts indicating warmer-than-normal weather across key parts of the U.S. in the coming week provided support.
On the New York Mercantile Exchange, natural gas futures for delivery in August traded at USD2.745 per million British thermal units during U.S. afternoon trade, plunging 4.79%.
Market participants noted that prices were expected to face strong resistance above the USD3.00-mark, a level widely considered to be where gas loses its appeal over coal for power generation.
Futures surged on Monday after updated weather forecasts showed that the U.S. Midwest was expected to remain hot and dry until the middle of July, while heat returns to the East Coast next week.
A bout of hot weather across much of the country over the last several weeks helped boost natural gas prices. Spot prices have rallied nearly 25% in the past three weeks, as extreme heat conditions in the U.S. mid-Atlantic boosted demand for the fuel.
Warmer-than-normal temperatures increase the need for gas-fired electricity to power air conditioning, boosting demand for natural gas. Natural gas accounts for about a quarter of U.S. electricity generation.
Meanwhile, lingering concerns over U.S. inventory levels were likely to continue to weigh on the market.
Total U.S. gas supplies stood at 3.102 trillion cubic feet last week, 24.1% above last year’s level and 22.7% above the five-year average for the week.
U.S. gas inventories did not hit the milestone 3 trillion cubic feet level until August 31 of last year.
Market analysts have warned that without strong demand through the rest of the summer, gas inventories will reach the limits of available capacity later this year.
The storage surplus to last year will have to be cut by at least another 355 billion cubic feet in the 19 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 Thursday’s storage report range from 20 billion cubic feet to 40 billion cubic feet, compared to last year’s build of 87 billion cubic feet. The five-year average change for the week is an increase of 90 billion cubic feet.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in August dropped 2.29% to trade at USD84.02 a barrel.
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