Forexpros – Natural gas futures exploded higher higher during U.S. afternoon trade Wednesday, as forecasts indicating warmer-than-normal weather across key parts of the U.S. in the coming week sparked the bullish move.
Investors also looked ahead to Thursday’s closely-watched U.S. government report on natural gas supplies.
On the New York Mercantile Exchange, natural gas futures for delivery in August traded at USD2.963 per million British thermal units during U.S. afternoon trade, surging 5.99%.
A recent bout of hot weather across much of the country over the last several weeks helped boost natural gas prices. Spot prices have rallied nearly 22% in the past four weeks, as extreme heat conditions in the U.S. mid-Atlantic boosted demand for the fuel.
Industry weather group MDA EarthSat said that it expected above-normal temperatures to linger across the northern half of the U.S. for the next two weeks, but readings in southern states were forecast to remain near normal.
Meanwhile, the National Weather Service has issued heat advisories across the northern Plains and Upper Midwest as forecasts are calling for temperatures as much as 20 degrees above normal.
Warmer-than-normal temperatures increase the need for gas-fired electricity to power air conditioning, boosting demand for natural gas. Natural gas accounts for about a quarter of U.S. electricity generation.
Meanwhile, market players shifted their focus to the U.S. Energy Information Administration’s closely-watched weekly report on natural gas inventories scheduled for Thursday.
Early injection estimates range from 13 billion cubic feet to 55 billion cubic feet, compared to last year’s build of 67 billion cubic feet. The five-year average change for the week is an increase of 74 billion cubic feet.
Total U.S. gas supplies stood at 3.135 trillion cubic feet last week, 21% above last year’s level and 20% above the five-year average level for that week.
U.S. gas inventories did not hit the milestone 3 trillion cubic feet level until August 31 of last year. Stocks peaked last year in November at a record 3.852 trillion cubic feet.
Market analysts have warned that without strong demand through the rest of the summer, gas inventories will reach the limits of available capacity later this year.
The storage surplus to last year will have to be cut by at least another 300 billion cubic feet in the 18 weeks left before winter withdrawals begin to avoid breaching the government’s 4.1 trillion cubic feet estimate of total capacity.
From a technical standpoint, market participants noted that prices were expected to face strong resistance near the USD3.00-mark, a level widely considered to be where gas loses its appeal over coal for power generation.
Prices hit a seven-month high of USD3.023 on July 6, but have lost nearly 5% since then.
Speculation that utility providers in the U.S. were switching from pricier coal to cheaper natural gas helped boost prices off a 10-year low of USD1.902 hit in mid-April.
Natural gas prices are up nearly 35% since touching a decade-low on April 20.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in September rose 0.70% to trade at USD90.17 a barrel.
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