Natural gas futures fell Friday as mild weather was expected to curb demand and Tropical Storm Nate was on track to miss the gas-production areas in the Gulf of Mexico, limiting the threat of supply disruptions there.
Gas for October delivery on the New York Mercantile Exchange fell 6.5 cents, or 1.7%, to settle at $3.915 a million British thermal units. Futures rose 1.1% on the week.
Futures gained for three consecutive sessions to start the holiday-shortened week, as a tropical disturbance developed near the energy-rich Gulf of Mexico and warmer forecasts pointed to an uptick in demand for the fuel to cool homes and businesses. But with the National Hurricane Center predicting Nate will make landfall in central Mexico and weather forecasts moderating, traders Friday took the opportunity to cash in on the market's recent gains.
Steep losses in equities markets and crude oil on worries about an economic slowdown also likely weighed on sentiment in the gas market, analysts said.
The National Hurricane Center said that Nate, located in the southern Gulf of Mexico, isn't likely to turn north toward the U.S. coast, where gas producers are still working to restore the remaining stalled output following Tropical Storm Lee. About 4% of Gulf gas production remained offline as of midday Friday, the U.S. offshore drilling regulator said.
With Nate unlikely to seriously curtail Gulf of Mexico gas production, traders looked to weather forecasts as a gauge for likely demand for the power-plant fuel. Mostly mild weather is expected across major gas-consuming areas along the East Coast through the Southeast and parts of the Midwest during the next two weeks, meteorologists with MDA EarthSat said Friday. Warmer-than-normal temperatures are expected for the Northwest through the weekend.
The weather and tropical-storm outlooks point to large increases in gas stockpiles for the rest of the month, said Jim Ritterbusch, of Ritterbusch and Associates, in a note. Injections into U.S. underground gas storage typically rise as summer's heat fades and leaves less demand for gas-fired electricity to run air conditioning.
The Energy Information Administration said Thursday that 64 billion cubic feet of gas were added to storage during the week ended Sept. 2, in line with forecasts. There were 3.025 trillion cubic feet in storage on the week, 2% below the five-year average.
The EIA said this week that it expects inventories to rise to 3.74 tcf at the end of injection season in October, short of earlier predictions that stockpiles would rise to a record. The amount of gas in storage hit a record of 3.84 tcf in November 2010.