Natural gas futures finished lower Thursday after the government reported a bigger-than-expected increase in U.S. gas inventories, signaling that sagging demand isn't keeping up with soaring production rates.
Natural gas for November delivery settled down 5.2 cents, or 1.4%, to $3.747 per million British thermal units on the New York Mercantile Exchange.
Futures declined after the U.S. Energy Information Administration said gas inventories rose 111 billion cubic feet last week, well above the 102 bcf-build called for by analysts surveyed by Dow Jones Newswires.
"It's just historically not this high," said Cameron Horwitz, analyst at Canaccord Genuity in Houston, of the inventory figure. "That is a reflection of the fact that you have supply that's growing by 6% year over year."
The storage build was larger than usual for this time of year and comes amid booming production in the U.S. and weakening demand during the so-called shoulder season, the period of slowing natural gas needs between the peak summer cooling and winter heating season.
The EIA said in a separate report Thursday that gas production in the lower 48 states rose 0.1% in July.
"We're just seeing that continued oversupply," said Kent Bayazitoglu, analyst at Gelber & Associates in Houston.
Last year, 73 bcf were injected into storage during the similar survey week. The five-year average build for the week is 71 bcf.
Front-month futures hit an 11-month low of $3.662 per million Btu last week and have traded below the $4 psychological threshold for more than two weeks. The contract is off a recent high of nearly $5 reached during the summer.
Traders are also increasingly concerned about weakening demand from industrial users on signs that U.S. economic growth remains weak. Futures were unmoved by a Commerce Department report showing that gross domestic product rose 1.3% in the second quarter, an upward revision from its previous estimate of 1% growth.
"The market really doesn't have the makings for a serious rally unless something triggers some kind of panic among the shorts that are really heavy in this market," said Gene McGillian, analyst and broker at Tradition Energy in Stamford, Conn.