Forexpros – Natural gas futures were up sharply during U.S. morning trade on Tuesday, regaining strength as the previous day’s steep sell-off created bargain buying opportunities for investors, while forecasts for warm weather into early June provided further support.
On the New York Mercantile Exchange, natural gas futures for delivery in June traded at USD2.709 per million British thermal units during U.S. morning trade, jumping 2.5%.
The June contract is due to expire at the end of trading on May 29.
Meanwhile, the more actively traded contract for July delivery surged 3.55% to trade at USD2.784 per million British thermal units. The July contract rose by as much as 4% earlier to trade at USD2.789, the highest since February 23.
Natural gas prices plunged nearly 5% in the previous session as investors cashed out of the market to lock in gains from last week’s impressive rally.
But the steep decline prompted investors to return to the market to seek cheap valuations as sentiment on the fuel has improved in recent weeks.
Prices are up more than 30% since hitting a decade-low of USD1.902 on April 19, amid indications major North American natural gas producers were cutting back on production.
Speculation that utility providers in the U.S. were switching from pricier coal to cheaper natural gas provided further support over recent weeks. However, market players noted that sustained prices back above USD2.50 and toward the USD3.00-level likely would inspire some switching back to coal.
Forecasts for warmer-than-normal weather across most parts of the U.S. Northeast and Midwest during the next 10-to-14 days provided further support.
Demand for natural gas tends to rise in the summer months as warmer temperatures increase the need for gas-fired electricity to power air conditioning
Despite the recent rally, some traders remain concerned over elevated U.S. storage levels.
The U.S. Energy Information Administration said last week that natural gas storage in the U.S. rose by 61 billion cubic feet 2.667 trillion cubic feet last week, a record high for this time of year and 40.8% higher than the five-year average.
Early injection estimates for this week’s storage data range from 70 billion cubic feet to 97 billion cubic feet, compared to last year’s build of 101 billion cubic feet. The five-year average change for the week is an increase of 97 billion cubic feet.
Weekly supply data has been mostly “bullish” in five of the last six weeks, but market participants noted that below average supply injections will be needed to trim record supplies to more manageable levels in the 26 weeks or so left before winter withdrawals begin.
If weekly stock builds through October match the five-year average, inventories would top out at 4.475 trillion cubic feet, 8.4% over peak capacity estimates of about 4.1 trillion cubic feet.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in July rose 0.85% to trade at USD92.58 a barrel, while heating oil for June delivery jumped 1.2% to trade at USD2.864 per gallon.
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