Forexpros – Natural gas prices rallied on Friday, as forecasts for extreme heat across key parts of the U.S. in the next two weeks boosted near-term demand expectations for the fuel.
On the New York Mercantile Exchange, natural gas futures for delivery in August settled at USD2.822 per million British thermal units by close of trade on Friday. Earlier in the day, prices hit a session high of USD2.832.
Front-month prices touched a high of USD2.971 on June 27, the highest since January 10. On the week, the front-month natural gas contract rallied 6.5%, the third consecutive weekly gain.
Monthly, the commodity rose 17%, the biggest monthly gain since September 2009. On the quarter, gas prices soared 33%, snapping a five-quarter losing streak. A bout of hot weather across much of the country over the last several weeks has helped boost natural gas prices.
Prices surged nearly 4% on Friday, buoyed by forecasts showing extremely warmer-than-normal weather across most parts of the U.S. in the coming two weeks.
Forecaster MDA EarthSat said it sees temperatures “near or above 100 Fahrenheit” in St. Louis in the next six to 10 days, as above-normal temperatures sweep across much of the Midwest and Northeast.
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.
Prices found further support from a report from industry group Baker Hughes showing that the number of active rigs drilling for natural gas in the U.S. last week fell by 7 to 534, the lowest since September 1999.
The gas rig count is 43% below last year’s level, fuelling hopes that major North American natural gas producers were beginning to curb output in response to declining prices.
Despite lower production levels, U.S. gas inventories remain at a record high for this time of year, after one of the warmest winters on record reduced demand for the heating fuel during its peak season.
Also Friday, the U.S. Energy Information Administration said natural gas output in the lower 48 states rose 0.8% to its highest level since January. April output averaged 72.48 billion cubic feet and was up 4.6% from a year earlier.
Natural gas prices slumped on Thursday, after the U.S. EIA said that natural gas storage in the U.S. rose by 57 billion cubic feet last week, above market expectations for an increase of 52 billion cubic feet.
Inventories rose by 84 billion cubic feet in the same week a year earlier, while the five-year average change for the week is an increase of 85 billion cubic feet, according to U.S. Energy Department data.
Total U.S. gas supplies stood at 3.063 trillion cubic feet last week, narrowing the surplus to 27% above last year’s level and 25% above the five-year average level for that week.
Natural gas prices are up nearly 45% since touching 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.
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.
U.S. gas inventories did not hit the milestone 3 trillion cubic feet level until August 31 of last year.
The storage surplus to last year will have to be cut by at least another 405 billion cubic feet in the 20 weeks left before winter withdrawals begin to avoid breaching the government’s 4.1 trillion cubic feet estimate of total capacity.
Early injection estimates for this week’s storage report range from 39 billion cubic feet to 55 billion cubic feet, compared to last year’s build of 90 billion cubic feet. The five-year average change for the week is an increase of 79 billion cubic feet.
Elsewhere in the energy complex, light sweet crude oil futures for August delivery traded at USD85.02 a barrel by close of trade on Friday, jumping 5.72% on the week.
Heating oil for August delivery rose 5.7% over the week to settle at USD2.702 per gallon by close of trade Friday.
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