Front-month U.S. natural gas futures ended lower for the second straight session on Monday, down 2.3 percent in the face of moderate U.S. weather forecasts for the next two weeks that should finally slow demand for air conditioning.
The front contract, which posted a two-month high of $3.82 on Thursday, finished last week nearly flat, gaining just 0.3 percent following a 4.2 percent rise the previous week. The nearby contract has lost 3.2 percent in the last two sessions.
"Now that the first day of fall has arrived, the weather is likely to continue on a path toward moderation as cooling-related demand starts to dissipate but heating demand is still not likely to click in just yet," Energy Management Institute partner Dominick Chirichella said in a report.
Front-month October gas futures on the New York Mercantile Exchange, which expire on Thursday, ended down 8.5 cents at $3.602 per million British thermal units, after trading in a range of $3.596 to $3.681. Some traders said the market seemed to be running out of steam after gaining ground in five of the last six weeks.
Comfortable inventories, record-high gas production and fading heat as milder autumn weather sets in have stirred doubts among some investors about further upside. In its six-to-10-day outlook, forecaster MDA Weather Services said warm temperatures across northern tier states and seasonal-to-cool readings in the South should continue to limit overall energy demand. But some traders said below-normal temperatures in the East and West this week could trigger some overnight heating load.
Energy Information Administration data on Thursday showed total domestic gas inventories stood at 3.299 trillion cubic feet. Stockpiles were 5 percent below last year's record highs at that time, but 0.5 percent above the five-year average.
Traders said production shut-ins last week due to flooding in Colorado might lead to another light storage build in this week's EIA report. The Thomson Reuters Analytics Group estimates that 0.5 bcf per day may have been shut in last week.
Early injection estimates for Thursday's EIA storage report range from 61 bcf to 75 bcf. Stocks gained 79 bcf during the year-earlier week, while the five-year average increase for that week is 75 bcf.
Baker Hughes data on Friday showed the gas drilling rig count fell by 15 last week to 386 after posting a six-month high the previous week. The rig count has risen in eight of the last 13 weeks, stirring talk that new investment in pipelines and processing plants was allowing producers to pump more gas into an already well-supplied market.
The EIA still expects U.S. gas production in 2013 to hit a record high for the third straight year.
In the ICE cash market, gas for Tuesday delivery at Henry Hub , the benchmark supply point in Louisiana, slipped 4 cents to $3.64, but late Hub differentials firmed to about 1 cent over NYMEX from a 5-cent discount on Friday.
Gas on the Transco pipeline at the New York citygate lost 3 cents to $3.77 on the mild Tuesday outlook, while Chicago was 2 cents lower at $3.72.
Despite the rise in tropical activity this month, there were no significant threats to Gulf of Mexico gas production.