Natural Gas Prices Drop on Warmer Weather

Brian Hicks

Written By Brian Hicks

Posted September 26, 2012

Amid weather reports suggesting warmer temperatures over much of the U.S. for the next several weeks, natural gas futures for October dropped on Monday, settling 1.7 percent lower at $2.837 per million British thermal units (MMBtu) on the NY Mercantile Exchange. November contracts settled 1.2 percent lower at $3.033/MMBtu.

Unusually warm temperatures should permeate the Midwest and most of the East Coast over the next two weeks, meaning demand for gas-powered heating will remain lower than expected.

The development comes at a fairly critical time for natural gas in the markets, as we’re entering the autumn period when demand declines as consumers begin moving away from air conditioning but do not yet switch on heating systems.

From First Enercast Financial:

“We’re not getting any frost yet or anything along those lines,” said Bob Yawger, director of energy futures at Mizuho. “There’s nothing in the 10-day forecast that implies we’re going to get an out-of-the-ordinary heating situation.”

It’s expected that U.S. natural gas inventories will increase alongside or beyond 5-year average builds after several months of under-performing. All of this, of course, assumes that there won’t be an unusual intervention of cold weather.

The Energy Information Administration indicated last week that domestic gas stockpiles increased by 67 billion cubic feet to hit 3.496 trillion cubic feet, or below the 73-bcf 5-year average build for this time of year.

As of now, stockpiles are 8.6 percent over 5-year average levels, and they continue rise, which means prices remain under pressure.

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