Natural gas futures and commodity-related exchange traded funds slumped Thursday after inventory levels unexpectedly expanded last week. Nevertheless, gas prices could inch higher if the sweltering heat persists and fuels A/C demand.
The United States Natural Gas Fund (NYSEArca: UNG) plunged 4.3% Thursday. UNG rose 5.0% over the past week and was up 5.2% over the past month.
Nymex natural gas futures decreased 4.6% Thursday and is now trading around $2.8 per million British thermal units.
Natural gas futures were pulling back after the U.S. Energy Information Administration revealed that stored natural gas inventories increased by 65 billion cubic feet for the week ended August 7, compared to analysts’ projections of a 55 bcf rise, reports Christian Berthelsen for the Wall Street Journal.
Overall inventories were at 2.912 trillion cubic feet, or 2.8% above historic averages.
“The data will be a test for the market after the recent rally,” Citigroup analyst Tim Evans told the WSJ, adding that the recent data was a bearish surprise.
The unexpected jump in inventory levels caught traders off guard as many were pushing up prices since the start of August in response to forecasts for hotter weather, which is expected to fuel demand for gas-fired electricity to power air conditioners across the U.S. The natural gas market has remained range bound, trading between $2.5 and $3 per million Btus.
Nevertheless, forecasters project a fourth straight day of demand gains ahead of above-average temperatures across Northeastern U.S. High temperatures will persist in Texas and the Southeast this week.
“This is expected to stoke air-conditioning demand for natural gas, as well as usage from the power generation sector,” research consultancy the Hightower Report said in a note.
Weather forecasting models predict warmer-than-normal temperatures across the east, central and southern U.S. after August 20 through the end of the month, which could drive electricity demand for cooling – natural gas makes up about a quarter of U.S. electricity generation, Investing reports.
United States Natural Gas Fund
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Max Chen contributed to this article.