Natural gas retreats from 2-month high on mild weather outlook

Natural gas fell more than 1.5% after hitting a 2-month high on Tuesday as forecasts for mild weather in key consuming areas curbed demand prospects. Market players focused on the outcome of FOMCs meeting due to conclude later today and Thursdays weekly EIA natural gas storage report.

On the New York Mercantile Exchange, natural gas futures for October settlement fell by 1.56% to $3.687 per million British thermal units at 14:05 GMT. Prices held in range between days high at $3.754 per mBtu, near yesterdays two-month high of $3.776, while days low was hit in early U.S. trading at $3.673 per mBtu.

Natural gas eased off its recently hit multi-week high as weather forecasts called for seasonal temperatures, which would limit demand for the power-station fuel. Market players also remained cautious ahead of the outcome of FOMCs meeting as gas, like all other dollar-denominated commodities, tends to fluctuate among variations of its pricing factor, the greenback. The fuels demand prospects were however trimmed as Commodity Weather Group LLC in Bethesda, Maryland, reported seasonal temperatures along the East Coast and cooler weather in the West between September 23 and September 27.

When warm weather is expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of the U.S. electricity generation. Mild temperatures have the opposite effect. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand.

Market players are also keeping a close watch on this weeks EIA natural gas storage report. According to a Bloomberg survey of five analysts, U.S. gas stockpiles probably rose by 59 billion cubic feet in the week ended September 13, compared to a 61 billion gain in the comparable period a year ago. If confirmed, the build would be well below the five-year average increase of 74 billion cubic feet.

Last weeks data showed that U.S. natural gas stockpiles added 65 billion cubic feet in the week ended September 6, above the five-year average build of 62 billion. Stockpiles increased by 27 billion cubic feet in the comparable week a year earlier.

Total gas held in underground storage hubs now equaled 3 253 billion cubic feet, and were 172 billion, or 5%, below last year’s 3 425 billion. The surplus over the five-year average of 3.207 trillion cubic feet remained unchanged at 1.4% from the preceding week.