US natural gas futures closed down more than 1 percent on Friday as some traders took profits from gains this week, despite warm weather forecasts that could result in more gas usage to power air conditioners. Front-month September gas futures on the CME NYMEX settled down 4.9 cents, or 1.3 percent, at $3.840 per million British thermal units. The session low was $3.83 while the high was $3.89.
Tim Evans, energy futures specialist at Citi Futures, noted "apparent book squaring ahead of the weekend." The market jumped 1.7 percent in the previous session as traders looked beyond a bearish build in gas stockpiles to focus on the possibility of hotter weather over the next two weeks.
For the week, September gas finished up almost 2 percent. Month to date, the contract was nearly flat while year to date it was down 9 percent. Evans also noted a hurricane possibility in the north-east Caribbean that could the limit the market's downside, although the storm was expected to stay well away from the Gulf of Mexico where most gas installations are located.
The US National Hurricane Center said a small low-pressure area approaching the Leeward Islands had a good chance of becoming a tropical cyclone in the next 48 hours. MDA Weather Services said forecasts over the next 11 to 15 days "took another small step in the warmer direction" for the eastern United States. For Texas and the south, some minor cool changes were likely late in the period.
Thomson Reuters Analytics' US weather models still predicted above-normal temperatures over the next two weeks, with 181 cooling degree days versus 187 on Thursday and a normal of 166 for this time of year. In early estimates, analysts said US utilities likely added 76 billion cubic feet of gas into storage this week, over builds of 88 bcf in the previous week, 65 bcf in the same week a year ago and 58 bcf on average over the past five years.
On the NYMEX, the premium of the front-month gas contract over spot Appalachian coal slipped to $1.38 from Thursday's level of $1.39. A gas premium between $1 and $2 makes it cost-effective for utilities to burn coal. On the IntercontinentalExchange, next-day gas at the Henry Hub, the benchmark supply point in Louisiana, shed 1 cent to average $3.86 per mmBtu. Next-day New York gas tumbled 49 cents to $1.87. Chicago citygate slid 2 cents to $3.94. Southern California Border fell 8 cents to $4.05. In power markets, the Mid Columbia hub in the Pacific Northwest rose $4 to average $44 per megawatt hour. PJM West in the Mid-Atlantic slid $1 to average $42.
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