NEW YORK (Dow Jones)--Natural gas futures fell after the government reported a larger-than-expected increase in U.S. gas inventories, signaling that demand isn't keeping up with soaring production rates.
Natural gas for November delivery recently traded down 2.6 cents, or 0.7%, to $3.773 a million British thermal units on the New York Mercantile Exchange.
Futures extended their earlier losses after the U.S. Energy Information Administration said gas inventories rose 111 billion cubic feet last week, more than the 102 bcf-build called for by analysts surveyed by Dow Jones Newswires.
The figure was "a massive number for this time of year," said Kent Bayazitoglu, analyst at Gelber & Associates in Houston. "We're just seeing that continued oversupply, and we've got the mild weather."
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.
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.
Last year, 73 bcf were injected into storage during the similar survey week. The five-year average build for the week is 71 bcf.
"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.
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.