Forexpros – Natural gas prices ended the week with strong gains on Friday, as speculation of further production cuts by major North American gas producers boosted prices, while some technical buying lent further support.
On the New York Mercantile Exchange, natural gas futures for delivery in June settled at USD2.196 per million British thermal units by close of trade on Friday.
On the week, prices surged 7.1%, the largest weekly advance since late January. Prices have rallied almost 14% in the past six sessions since falling to a ten-year low of USD1.902 on April 19.
Sentiment on the heating fuel has improved in recent session as natural gas traders began to bet that prices near USD2.00 may result in production cuts.
A report from industry research group Baker Hughes Friday showed that that the number of active rigs drilling for natural gas in the U.S. fell by 18 last week to 613, the lowest since April 2002. The gas rig count is down by almost 35% since peaking at 936 in October.
The steady decline in rigs drilling for natural gas in the U.S. has fuelled speculation that major North American natural gas producers will begin to curb output in response to declining prices.
Royal Dutch Shell on Thursday said it would be switching the bulk of its gas drilling program in the U.S. toward the production of “wet” natural gas and away from “dry” gas.
Canada’s largest gas producer, Encana, on Wednesday also raised expectations about more gas supply cuts, while ConocoPhillips said it will continue to shut down U.S. natural gas output.
Some chart buying also contributed to gains, after prices broke above a key resistance level close to their 40-day moving average, triggering fresh buy orders.
Prices have been hitting a string of fresh 10-year lows below the key USD2.00-level over the past two weeks, as market sentiment has been dominated by ongoing concerns over waning demand and elevated U.S. storage and production levels.
The U.S. Energy Information Administration said in its weekly report Thursday that natural gas storage in the U.S. rose by 47 billion cubic feet last week, broadly in line with expectations, after increasing by 25 billion cubic feet in the preceding week.
Inventories rose by 35 billion cubic feet in the same week a year earlier, while the five-year average change for the week is an increase of 47 billion cubic feet, according to U.S. Energy Department data.
Total U.S. natural gas storage stood at 2.548 trillion cubic feet as of last week, 52% above last year’s level and almost 56% higher than the five-year average for this time of year.
Futures initially surged by as much as 5.8% following the release of the data, before retracing gains and turning mildly lower amid confusion after the U.S. EIA issued surprise revisions to four weeks worth of inventory data.
Analysts said the downward revisions were relatively modest and do almost nothing to address the enormous storage overhang afflicting the market.
The EIA attributed the revisions to resubmissions of data by storage companies. The agency declined to give details on which companies made the revisions, the first since the week ended November 23, 2011.
Despite Friday’s upward move, market participants are weary to push prices higher amid concerns U.S. gas supplies will reach total storage capacity by October.
Early injection estimates for next Thursday’s storage data range from 25 billion cubic feet to 45 billion cubic feet, compared to last year’s build of 60 billion cubic feet. The five-year average change for the week is an increase of 79 billion cubic feet.
Current inventories are at levels they didn’t reach last year until the end of June. Concerns are growing over whether enough capacity exists to store the fuel.
If weekly stock builds through October match the five-year average, inventories would top out at 4.594 trillion cubic feet, 12% over peak capacity estimates of about 4.1 trillion cubic feet.
Natural gas prices have plunged almost 15% since the beginning of March and are down nearly 26% since the start of 2012.
Elsewhere in the energy complex, light sweet crude oil futures for June delivery traded at USD104.78 a barrel by close of trade on Friday, rising 0.86% on the week, while heating oil for June delivery added 1.35% over the week to settle at USD3.181 per gallon by close of trade Friday.
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