Natural gas for November delivery fell 14.1 cents, or 3.5 percent, to settle at $3.898 per million British thermal units on the New York Mercantile Exchange, the biggest one-day decline since Sept. 2. Volume for all futures traded was 16 percent below the 100-day average. Futures are down 7.8 percent this year.
The U.S. Energy Department’s weekly inventory release showed another larger-than-expected rise in natural gas supplies. Moreover, the storage build was bigger than the benchmark 5-year average gain for the week.
Record production from the unconventional drilling boom keeps capping the market at around $4/mmBtu, where trading closed on Friday. Some traders have briefly pushed gas beyond that point several times since August, in anticipation of peak winter demand season when extreme weather can lead to price spikes. Without any sign of cold weather, strong natural gas production has kept them from sustaining those prices.
Investors continued to digest last week’s inventory data, which showed a larger than expected increase for the 24th consecutive week. The U.S. Energy Information Administration said that natural gas storage in the U.S. rose by 112 billion cubic feet, above expectations for an increase of 107 billion.
The storage data “reaffirms our bearish gas views,” Adam Longson, an analyst at Morgan Stanley in New York, said in a note to clients today. “As shoulder season demand takes hold, record supply growth will keep injections elevated.”
The recent comfortable readings are projected to lead to another quite larger than the average natural gas build due to be reported this Thursday. According to analysts’ preliminary estimates, the government agency will likely report a build of 114 billion cubic feet in the week ended October 3rd, exceeding last year’s 91-bcf injection during the comparable week and the five-year average increase of 84 billion cubic feet.
“The market is at a crossroads,” Mr. Calder said in a note. “Natural gas Production is growing, and current demand is low, which is why the market is selling off. The current fundamental picture is bearish but strong, sustained, heating demand can trump that.”