US natural gas futures dipped to a one week low on Wednesday on forecasts for less-hot weather over the next two weeks that is expected to trim power demand for the fuel to meet air conditioning use. On its last day as the front month, gas futures for August delivery fell 4.0 cents, or 1.5 percent, to settle at $2.672 per million British thermal units.
September futures, which will soon be the front-month, were down about 2 cents at $2.66. Out West, the California ISO, which operates the power grid, urged consumers to conserve electricity to help maintain power reliability during a heat wave. That boosted next-day power prices at all of the western hubs with Palo Verde rising to its highest since February 2014. As the heat wave blanketing much of the country breaks in coming days, analysts said storage injections would probably increase as the power sector uses less fuel, potentially driving prices lower as the market focuses on the mountain of gas still left in storage after the warmer-than-normal winter of 2015-2016.
That, however, should not happen soon because temperatures, though not as hot as predicted earlier in the week, are expected to remain at above-normal levels over the next two weeks. US power generators are expected to burn an average of 39.5 billion cubic feet per day of gas this week and 39.4 bcfd next week to meet air conditioning demand, topping the record high of 37.8 bcfd set in July 2015, according to Thomson Reuters data.
In early estimates, analysts said utilities probably added just 25 billion cubic feet of gas into storage during the week ended July 22, the least for that week since at least 2010. That compares with builds of 52 bcf for both the year-earlier week and the five-year average. Inventories have remained at seasonal highs since April, and analysts expect stockpiles to end the injection season at a record high in early November.
That storage glut has kept a lid on next-day prices at the Henry Hub benchmark in Louisiana, which has averaged $2.14 so far this year. That compares with $2.61 in 2015, the lowest since 1999. Futures for the balance of 2016, meanwhile, were fetching $2.84.