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Natural gas futures tumbled to a one-month low Friday as forecasts showed cooler temperatures ahead that may lower gas usage by power plants.
Natural gas futures for September delivery settled 17.5 cents, or 5.9%, lower at $2.77 a million British thermal units on the New York Mercantile Exchange, after falling as low as $2.76/MMbtu earlier in the session.
Forecaster MDA EarthSat predicted Friday a “stronger shot of cool air” would descend on the Midwest over the next five days, leading to cooler-than-normal temperatures as the end of August approaches.
“When we saw the weather forecasts change, people were keying off the fact that we don’t have a long period of heat left,” said Gene McGillian, a broker and analyst at Tradition Energy.
Friday’s drop sent prices to the lowest level since July 10 and follows a session of volatile price action Thursday during which prices shot above $3.10/MMBtu.
Above-normal temperatures across the U.S. over the past two months have slowed the growth of U.S. gas inventories and helped push prices toward $3/MMBtu. The hot weather prompted homes and businesses to turn up air conditioning, forcing power plants to burn more gas to meet electricity demand.
Now, investors are beginning to look ahead to the autumn, which is typically a period of lower fuel usage as temperatures moderate across the U.S.
“The second half of August, as the weather fades off, a selloff happens,” said Pax Saunders, an energy analyst at Gelber & Associates. “It’s a seasonal pattern.”
The U.S. Energy Information Administration said Thursday the volume of gas held in underground storage increased by 24 billion cubic feet last week, below analysts’ estimates. But analysts said with just a few weeks left in August, investors are bracing for larger supply builds.
The EIA said inventories last week stood at 3.2 trillion cubic feet, which is still 16.8% above last year’s level and 13.5% above the five-year average level for the week.
FUTURES SETTLEMENT NET CHANGE
Nymex Sep $2.770 -17.5c
Nymex Oct $2.808 -16.2c
Nymex Nov $3.027 -12.9c
CASH HUB RANGE PREVIOUS DAY
Henry Hub $2.79-$2.865 $2.865-$3.00
Transco 65 $2.765-$2.865 $2.87-$2.95
Tex East M3 $2.885-$3.03 $3.06-$3.23
Transco Z6 $2.96-$3.025 $3.07-$3.28
SoCal $2.99-$3.14 $3.04-$3.155
El Paso Perm $2.83-$2.905 $2.86-$3.00
El Paso SJ $2.70-$2.835 $2.80-$2.90
Waha $2.815-$2.895 $2.91-$2.97
Katy $2.82-$2.94 $2.93-$2.995
Write to Jerry A. DiColo at Dow Jones.