Natural gas declines ahead of U.S. supplies data

Natural gas futures fell to a 2-1/2 week low on Thursday before the release of EIAs weekly natural gas storage report which may show U.S. inventories rose more than the average last week, indicating softening demand. However, short-term forecasts for below-average temperatures in parts of the U.S. limited losses.

On the New York Mercantile Exchange, natural gas for delivery in November fell by 0.98% to $3.584 per million British thermal units by 11:40 GMT. Prices plunged to a session low of $3.575, the weakest level since October 7, while days high stood at $3.630 per mBtu. The fuel capped two days of declines on Wednesday and added 0.9% but extended its weekly fall to 4.9% on Thursday.

The energy source was pressured throughout the day on expectations that the Energy Information Administration will report a higher-than-the-average rise in U.S. natural gas inventories last week. According to a Bloomberg survey of seven analysts, stockpiles are projected to have increased by 82 billion cubic feet, exceeding the five-year average gain of 67 billion cubic feet and last years 64 billion surge during the comparable week.

The fuel extended losses on Tuesday after the Energy Information Administration released its delayed storage report which was slated for October 17. The government agency reported that U.S. inventories rose by 77 billion cubic feet in the week ended October 11, matching the median estimate of analysts surveyed by Bloomberg. The build however exceeded the five-year average increase of 75 billion cubic feet and last year’s 54 billion gain during the comparable week.

Total gas held in underground U.S. storage hubs equaled 3.654 trillion cubic feet, 3.1% lower than last year’s 3.769 trillion cubic feet. The surplus over the five-year average total amount remained unchanged at 1.6%.

Losses were however limited as weather forecasting models predicted below-usual temperatures in parts of the U.S. in the short-term. MDA Weather Services forecast called for cold weather across the Midwest and Northeast through October 27.

Matt Rogers, president of Commodity Weather Group LLC, said for Bloomberg yesterday that colder-than-usual weather will continue to stoke heating demand in Chicago and around the Great Lakes in November. Temperatures in most of the eastern U.S. are projected to be 5 to 8 degrees Fahrenheit below the average through the end of the week, Rogers added.

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 the U.S. electricity generation. 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.

However, extended weather forecasts predicted temperatures to rise above the average across large part of the U.S. throughout most of November, limiting demand prospects for the power-plant fuel.