Natural gas declines amid forecasts for lower temperatures

Natural gas futures fell more than 1.5% on Tuesday as weather forecasters predicted that temperatures along the East Coast and parts of the Midwest will fall to seasonal, thus limiting the power plant fuels demand prospects.

On the New York Mercantile Exchange, natural gas for delivery in October fell by 1.53% to $3.499 per million British thermal units at 14:04 GMT. Prices ranged between days high and low of $3.556 and $3.483 per mBtu respectively. The fuel trimmed its weekly advance to 0.45% after gaining 7.8% in the preceding two weeks.

Natural gas pared weekly gains as revised weather forecasts predicted that temperatures will fall to the average for this time of the year across key consuming areas. MDA Weather Services in Gaithersburg, Maryland, reported seasonal temperatures along the East Coast and parts of the Midwest between September 1 and September 10.

Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said for Bloomberg: “We’ve seen a little bit of the heat taken out of the forecast next week for the Midwest and the Northeast.”

When higher-than-normal temperatures are 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 will also be keeping a close eye on this weeks U.S. natural gas storage. Early injection estimates for last week’s build range between 53 billion and 69 billion cubic feet, which is generally in line with the five-year average gain of 66 billion and last year’s increase by 64 billion cubic feet during the comparable week.

The fuel was well supported last week following EIA’s bullish inventories report. Natural gas storage increased by 57 billion cubic feet in the week ending August 16, compared to last year’s and the five-year average builds at 43 billion and 56 billion cubic feet respectively. The rise was well below market projections for a 67 billion cubic feet increase according to a Bloomberg survey of analysts.