Natural gas fell in New York, retreating from a 10 percent gain yesterday, on speculation that supplies will reach a record later this year.

Futures prices may stay under pressure through the third quarter, averaging $3.75 per million British thermal units, as storage nears capacity, Stephen Richardson, an analyst at Morgan Stanley in New York, said in a report. Gas rose yesterday on signs fuel use would increase from industrial users, who account for 29 percent of gas demand.

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Everybody is in a wait-and-see attitude,¡± said Michael Rose, director of trading at Angus Jackson Inc. in Fort Lauderdale, Florida. ¡°People are going to wait to see¡± more economic data.

Natural gas for September delivery fell 3 cents, or 0.7 percent, to settle at $4.001 per million British thermal units at 2:50 p.m. on the New York Mercantile Exchange. Gas is down 29 percent this year.

U.S. gas inventories are the highest for this time of year since the Energy Department began keeping records in 1994. Supplies increased by 71 billion cubic feet in the week ended July 24 to 3.023 trillion cubic feet, department data show.

Stockpiles were 19 percent higher than the five-year average for this time of year and 23 percent above storage levels for the same period a year earlier.

¡°We¡¯re going through the rip tides of two competing tidal forces,¡± said Peter Beutel, president of Cameron Hanover Inc., an energy consulting company in New Canaan, Connecticut. ¡°One that is still focusing on the overhang of inventories, and the second, which is the promise of the economy strengthening and that industrial demand will start to make a comeback.¡±

Industrial Use

Total gas used by factories, steel mills and chemical plants, plunged 13 percent in the first five months of 2009 to 2.576 trillion cubic feet from the same period a year earlier, the Energy Department said on July 29.

¡°As long as we hold above $3.75, the market is worthy of taking a look at to the long side,¡± Rose said. ¡°If it penetrates below there, then all bets are off,¡±

Higher U.S. prices compared with those for September gas in the U.K. may attract shipments of liquefied natural gas by the end of this summer, Biliana Pehlivanova, an analyst with Barclays Capital in New York, said in a note.

¡°Given that the large storage hangover still persists in the U.S., this poses the risk of further bearish price action for natural gas,¡± she said.

Gas for delivery next month at the main U.K. trading hub was trading today at the equivalent of $3.87 per million Btu, according to data compiled by Bloomberg.

LNG imports may rise 44 percent this year to 506 billion cubic feet as world production climbs, the Energy Department said in a forecast last month.

LNG is gas that is cooled to a liquid for transport by ship to markets not connected by pipelines. The fuel is received at import terminals and converted back to a gaseous form so it can be piped to users.