Natural gas falls on mild weather outlook

Natural gas futures fell for a second day on Tuesday as weather forecasters predicted average temperatures in most of the U.S., limiting the power-station fuels demand prospects.

On the New York Mercantile Exchange, natural gas futures for settlement in December traded at $3.640 per million British thermal units at 14:44 GMT, down 0.59% on the day. Prices held in range between days high and low of $3.684 and $3.634 per mBtu respectively. The fuel fell on Monday and extended its weekly decline to 2.4% following Tuesdays retreat.

The energy source extended its fall as weather forecasting models predicted average temperatures across most of the U.S. Commodity Weather Group LLC in Bethesda, Maryland, predicted mostly normal weather in the eastern parts of the U.S. between November 3 and November 12. According to AccuWeather Inc., temperatures in New York on November 6 may bottom at 45 degrees Fahrenheit, 1 above average.

When cool 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 U.S. electricity generation. Average and above-average readings during the winter season have the opposite effect. Consumption usually picks up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 49% of U.S. households use the energy source for heating.

Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said for Bloomberg: “The weather is not as cold as people thought it was going to be, and now it’s actually going to warm up a little bit. There’s a lot of downward pressure on the market right now.”

Market players will also be keeping a close watch on EIAs weekly U.S. natural gas storage inventories data. The Energy Information Administration reported last Thursday that U.S. natural gas supplies added 87 billion cubic feet in the week ended October 18, surpassing the median estimate of seven analysts surveyed by Bloomberg for an 82 billion increase. Last week’s build also exceeded the five-year average increase of 67 billion cubic feet and last year’s 64 billion increase during the comparable week.

Total gas held in underground U.S. storage hubs now equaled 3.741 trillion cubic feet, 2.1% below last year’s 3.833 billion. The surplus over the five-year average inventories of 3.644 trillion cubic feet widened by 0.5% to 2.1% from the preceding week.

The report also showed that stockpiles in the Producing Region were 9.3% above the five-year average of 1.139 trillion cubic feet following a net injection of 33 billion cubic feet. Supplies in the East region rose by 50 billion to 1.947 trillion and were 3.9% below the five-year average of 2.027 trillion cubic feet.

Early injection estimates for this weeks build range between 20 and 43 billion cubic feet compared to the five-year average increase of 57 billion and last years 66 billion cubic feet gain during the comparable week.

According to a Bloomberg survey of analysts, natural gas is expected to surge this week. Eight of 14 participants polled last week, or 57%, wagered that prices will gain, while four were bearish and two projected no significant change.