Natural Gas Breaks Three-Year Low

The U.S. EIA said producers added 98 billion cubic feet of natural gas to storage last week

Natural gas plummeted to a new three-year low as heavy surpluses deepen a selloff.

It is the latest leg down for a commodity that has struggled for years under the weight of a record-setting oil-and-gas boom. Production has hovered around all-time highs for about a year, which eventually became too much for prices that had managed to stabilize and outperform most other commodities for the past several months.

Prices for the front-month November contract fell 9.1 cents, or 3.6%, to $2.433 a million British thermal units on the New York Mercantile Exchange. It is the largest one-day loss in seven weeks and the lowest settlement since June 13, 2012.

Gas had managed to tread water this summer and even briefly hit a bull market in the spring because of surging demand from power plants that are switching away from coal. But in recent weeks that demand has subsided along with hot weather and the use of air conditioners, causing surpluses to build up and prices to fall.

The U.S. Energy Information Administration said Thursday morning that producers added 98 billion cubic feet of natural gas to storage in the week ended Sept. 25. It follows a 106-bcf addition last week, the largest weekly additions since early June.

The EIA update is widely considered one of the best measures of supply and demand for the natural gas market. Tudor, Pickering, Holt & Co., a Houston investment bank, had estimated before the data that a weekly addition of this kind would equate to about 3 bcf of oversupply last week.

Storage levels are threatening to start the winter heating season at record highs. Last week’s addition put them at 4.5% above their five-year average level for this week of the year and 15% above their level at this time a year ago.

That helped push prices below those multi-year lows, which could also encourage chart traders to push even lower, said Scott Gettleman, an independent trader in New York. He has been in spread trades Thursday that would benefit as prices fall, he said.

“I just don’t see a reason to rally right now,” Mr. Gettleman added. “You’ve got to wait until at least some cold weather comes in.”

Weather forecasters are predicting a mild start to autumn and heavy East Coast rains from Hurricane Joaquin. Both can lead to soft demand for natural gas, and have traders and analysts expecting more large weekly surpluses in the months to come.

 

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