Natural gas plunged 3% after the U.S. Energy Information Administration recently published data showing U.S. gas reserves increased more than expected. Natural gas storage rose by 99 million cubic feet last week, above the forecast for an increase of 95 billion cubic feet. The five-year average change for the week stood at 69 billion cubic feet. The June contract traded at $3.998 prior to the release of the report, followed by a drop to $3.951 after data came out.
Tim Evans, an energy analyst at Citi Futures Perspective in New York, said for Bloomberg: “We did see a larger-than-expected build in storage for the second consecutive week. The rally that preceded this drop was not well-supported fundamentally. We are seeing year-on-year supply growth, so production growth against the demand decline, that’s bearish.”
Prices were also pressured as weather forecasts predicted that above-normal temperatures in the U.S. will fall next week, Commodity Weather Group LLC said. Gordy Elliott, a risk-management specialist at INTL FC Stone LLC in St. Louis Park, Minnesota, said for Bloomberg: “We have no extreme temperatures in the forecast so we are not going to need a lot of power generation. We should have some bigger injections in the next three or four weeks and we should continue to see pressure in this market.”
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.
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