Natural gas futures are plummeting on Thursday after the US government reported a larger-than-expected build in domestic supplies. Natural gas is joining the selloff in the broader financial market that is also affecting crude oil prices. Is this a buying opportunity or the end of a monumental bull run? It might depend on the weather heading into the fall.
September natural gas futures plunged $0.101, or 2.62%, to $3.751 per million British thermal units (btu) at 14:44 GMT on Thursday on the New York Mercantile Exchange. Natural gas is poised for a weekly loss of about 4%, paring its year-to-date rally to below 48%.
According to the US Energy Information Administration (EIA), domestic inventories of natural gas surged 46 billion cubic feet in the week ending August 13. The market had anticipated a build of 31 billion cubic feet.
In total, US supplies of natural gas total 2.822 trillion cubic feet. This is 547 billion cubic feet less than a year ago and 174 billion cubic feet below the five-year average.
Overall, natural gas prices are joining the broader selloff in the equities arena, responding to the Federal Reserve preparing to taper its $120-billion-per-month quantitative easing (QE) program. Both stocks and the commodities market had endured a sharp selloff during the Thursday trading session.
Meanwhile, the latest weather models suggest that cooling is expected in many parts of the US toward the end of August. That said, Bespoke Weather Services say that the weather trends are supportive for natural gas, but the slump is being driven by factors in the financial markets.
“We moved our forecast just slightly in the hotter direction, preferring to wait and see if this trend continues or reverts back the other direction on the next set of runs. Either way, the overall picture is not changed significantly.
“The move, in our view, is likely connected to a general swift down move in all markets, with both equities and oil down solidly as well. All in all, strictly from a data standpoint, the picture still looks supportive here, though prompt month prices need to reclaim the $3.80 level here to avoid further declines driven by algorithmic trading and technical factors.”
That said, market analysts are forecasting that natural gas will soon test $3.70, which would be the lowest level since the beginning of July.
In other energy markets, September West Texas Intermediate (WTI) crude oil futures plunged $2.09, or 3.21%, to $63.12 a barrel. October Brent crude futures shed $2.05, or 3.00%, to $66.18 per barrel. September gasoline futures slid $0.073, or 3.4%, to $2.0747 per gallon. September heating oil futures dropped $0.0592, or 2.92%, to $1.9654 a gallon.