--Cool weather, weaker utility demand seen weighing on prices
By Jerry A. DiColo
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Natural gas futures moved lower Tuesday, declining for the third-straight session on the threat of cooler weather and concerns that the recent rally has sapped utilities' demand for the fuel.
Natural gas for June delivery recently traded 3.8 cents, or 1.5%, lower at $2.530 a million British thermal units on the New York Mercantile Exchange.
Forecasters are expecting cooler U.S. temperatures this week, particularly in East and Midwest. A drop in temperatures typically lowers the demand for gas-fired electricity, as consumers cut their use of air conditioning.
The change in the weather outlook comes as investors are also returning their focus to the U.S. gas supply glut. Prices have rallied from below $2.00/MMBtu in April on signs that utilities were switching to gas from coal to generate power, potentially slowing the build up of U.S. gas inventories.
Now, with prices up roughly 26% from decade lows last month, investors are concerned that utilities may stop turning to gas.
"It looks like there isn't the internal strength to push higher, given the backdrop in supplies that we're still seeing," said Matt Smith, analyst at Summit Energy. "The bigger picture is we're still well supplied here."
Jim Ritterbusch, head of oil-trading advisor Ritterbusch and Associates, said investors expect utilities will switch back to coal from gas when prices near $2.75/MMBtu, which occurred last week.
"While these types of dynamics are always difficult to quantify, we do feel switching from coal to gas has subsided," said Ritterbusch in a note to clients.
Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $2.47/MMBtu, according to IntercontinentalExchange, compared with Friday's average of $2.5648/MMBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $2.73/MMBtu, down from $2.7862/MMBtu.
