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Natural Gas Prices Fall to Two-Week Low

October 21, 2016 at 17:36 by Andrew Moran

Natural gas has had a bad week. After reports of warm autumn days and growing stockpiles that have impacted the market, natural gas prices have reversed their trend so far this year and are now trading at multi-week lows. This comes as natural gas futures recently touched a 22-month high.

November natural gas futures declined $0.015, or 0.7%, to $3.021 per million British thermal units (MBTU) at 17:04 GMT on Friday on the New York Mercantile Exchange. Natural gas futures have not traded this low since October 7.

Natural gas prices have declined more than 6% over the past five trading sessions. Last year at this time, natural gas futures were trading at $2.93 per MBTU.

Since April, natural gas futures have surged more than 70% because of a slowdown in US drilling and early forecasts of a colder-than-normal weather this winter.

Natural gas futures were negatively impacted following a US government report on Thursday. According to the Energy Information Administration (EIA), natural gas stockpiles rose by 77 billion cubic feet (bcf) last week. This is higher than previous estimates of 73 bcf. As of October 14, natural gas inventories stood at 3.8 trillion cubic feet, which is 1.2% higher than the same time a year ago.

Analysts are now warning that the excess supply in natural gas stockpiles could set a new record in the coming months.

Moreover, the warmer-than-normal autumn weather this year has also impacted the outlook for natural gas demand. Since US homes use natural gas for winter heat and it supplies roughly one-third of all power demand, the EIA’s outlook remains tepid at best. Several long-term weather forecasts suggest warm temperatures deepening into November; some parts of the country could witness temperatures as high as 15 degrees Fahrenheit above normal.

Investors have warned that the natural gas market is overheated and that a correction could come soon. If cold weather does not arrive and production ramps up then that correction may unfold early next year.

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