Natural gas down 2% on mild weather forecasts

Natural gas extended last weeks decline into Monday as weather forecasters predicted seasonal temperatures in key consuming areas of the U.S., curbing demand prospects for the power-station fuel. Expectations for a larger than the average increase in inventories also weighed on the market.

On the New York Mercantile Exchange, natural gas futures for settlement in November fell by 2.02% to $3.517 at 14:36 GMT. Prices held in range between days high and low of $3.582 and $3.510 per million British thermal units. The fuel rose by 0.4% on Friday but settled the week 2.67% lower, extending its quarterly decline to 0.8%.

Gas continued to decline amid weather forecasts for cooler weather, which would limit demand. Commodity Weather Group LLC in Bethesda, Maryland, reported that temperatures in the central U.S. between October 5 and October 9 will drop to seasonal after remaining warmer-than-usual this week.

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. Consumption usually declines in autumn before picking from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand.

Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said for Bloomberg: “This is normally the weakest demand period of the year because temperatures are in a perfect nirvana of not too hot and not too cold. We’re under a little bit of pressure with ample supplies.”

The fuel plunged last Thursday after the Energy Information Administration reported that U.S. natural gas inventories added 87 billion cubic feet in the week ended September 20, compared to the five-year average increase of 75 billion and last year’s 79 billion build during the comparable week. Analysts expected a gain in the range between 61 billion and 71 billion cubic feet.

Natural gas held in underground storage hubs now totaled 3.386 trillion cubic feet, which is 5% below 2012′s 3.565 trillion. However, the surplus over the five-year average total value of 3 356 billion cubic feet widened to 0.9%.

Market players will be keeping a close watch to this weeks inventories data. Early injection estimates for this weeks build range between 82 and 100 billion cubic feet, well above last years 77 billion during the comparable week and the five-year average increase of 82 billion cubic feet.