Natural gas futures fall to 2-1/2-month low on mild weather forecasts

Natural gas fell to the lowest since mid-August amid forecasts for above-average temperatures in key U.S. consuming areas, limiting the power-station fuels demand prospects prior to the peak winter season.

On the New York Mercantile Exchange, natural gas futures for settlement in December traded at $3.442 per million British thermal units at 14:37 GMT, down 2.04% on the day. Prices plunged to a session low of $3.408 per mBtu, the weakest level since August 18, while days high stood at $3.468. The fuel lost 1.2% on Friday, a fifth consecutive daily retreat, and settled the week 5.6% lower after falling nearly 1.6% in the preceding two five-day periods.

Natural gas extended losses as weather forecasts called for above-average readings in the eastern U.S. by mid-November that may extend through the end of the month. Matt Rogers, president of Commodity Weather Group LLC, said for Bloomberg that temperatures from the Great Plains to the mid-Atlantic states might be 3 degrees Fahrenheit above usual between November 14 and November 18. Weather from the Great Lakes to Louisiana is also projected to be warmer than usual with readings averaging at 5 degrees above normal.

“The warmest focus seems to be for the South to Midwest first, but expansion toward the East Coast is seen by later in the period, too, with potential for this to dominate the second half of November now,” Rogers said for Bloomberg.

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.

Market players will also be keeping a close watch to this weeks U.S. inventories data provided by the Energy Information Administration. Early injections estimates for last weeks build range between 33 billion and 45 billion cubic feet, compared to the five-year average gain of 36 billion and last years 27 billion cubic feet increase during the comparable week.

The Energy Information Administration said last Thursday that U.S. natural gas stockpiles added 38 billion cubic feet in the week ended October 25, well below the five-year average gain of 57 billion cubic feet and last year’s 66 billion increase during the comparable period. Total gas held in underground U.S. storage hubs now equaled 3.779 trillion cubic feet, 3.1% below last year’s 3.899 trillion. The surplus over the five-year average level of supplies narrowed by 0.5% to 1.6%. Last weeks smaller-than-the-average build however couldnt shift the energy source’s downward momentum and only limited losses.