Forexpros – Natural gas futures rocketed higher duirng U.S. afternoon trade Wednesday, coming off an almost two-week low as forecasts showing warmer-than-normal weather across key parts of the U.S. in the coming week provided support.
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 USD2.849 per million British thermal units during U.S. afternoon trade, surging 4.11%.
Natural gas futures found support after updated weather forecasts showed that the U.S. Midwest was expected to remain hot and dry until the middle of July, while heat returns to the East Coast next week.
A bout of hot weather across much of the country over the last several weeks helped boost natural gas prices. Spot prices have rallied nearly 25% in the past three weeks, as extreme heat conditions in the U.S. mid-Atlantic boosted demand for the fuel.
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 20 billion cubic feet to 40 billion cubic feet, compared to last year’s build of 87 billion cubic feet. The five-year average change for the week is an increase of 90 billion cubic feet.
Total U.S. gas supplies stood at 3.102 trillion cubic feet last week, 24.1% above last year’s level and 22.7% above the five-year average for the week.
U.S. gas inventories did not hit the milestone 3 trillion cubic feet level until August 31 of last year.
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 355 billion cubic feet in the 19 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 above 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 8% since then.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in August surged 2% to trade at USD85.61 a barrel, while heating oil for August delivery jumped 1.45% to trade at USD2.758 per gallon.
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