Bargain hunters snapped up contracts on the cheap Monday as natural gas futures plunged to their lowest level in almost a year. Following the steep decline, futures rebounded Tuesday, settling up 2.1 cents, or 0.6%, at $3.638 a million British thermal units on the New York Mercantile Exchange.
Despite the day’s rebound, futures may still have further to fall this month, as mild weather forecasts dampened hopes of an early gas-driven heating demand. The weather outlook means energy users in densely populated areas could delay turning on heating in homes and businesses, weakening gas demand.
“While October should be relatively mild across much of the U.S., below-normal temperatures will become more common in the eastern U.S. in November and across all of the northern U.S. by December,” industry weather group Weather Services International said in a statement.
Gas futures have already been under pressure in recent weeks due to slowing demand from the so-called shoulder season, the period between the summer air-conditioner demand season and the winter heating demand period. Front-month futures have held under $4 per million Btu for more than two weeks.
Elevated production levels across the U.S. and large storage injections have also weighed on prices. Last Thursday, the Energy Department said the industry added 111 billion cubic feet of gas in storage in the previous week, bigger than the 102 billion cubic feet seen by analysts.
The Energy Department is due to report its next inventory update this Thursday.
“I think the market is just playing wait-and-see here,” said Matt Smith, analyst at Summit Energy in Louisville, Ky.
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