Forexpros – Natural gas prices settled higher for the second consecutive session on Friday, as prices were boosted amid concerns over the possibility of a tropical storm in the Gulf of Mexico.
On the New York Mercantile Exchange, natural gas futures for delivery in July settled at USD2.636 per million British thermal units by close of trade on Friday. Earlier in the day, prices touched a two-day high of USD2.661.
Front-month prices touched a high of USD2.675 on June 20, the highest since May 25. On the week, the front-month natural gas contract rallied 6.52%, the second consecutive weekly gain.
Prices rose nearly 2.5% on Friday, amid worries over a potential storm in the Gulf of Mexico that could disrupt production. The U.S. National Hurricane Center said that a low pressure system in the Gulf had a 70% chance of developing into a tropical cyclone over the next two days.
Gas drillers Anadarko Petroleum and Murphy Oil announced they were evacuating all non-essential personnel from their Gulf of Mexico operations on Friday.
Energy traders track tropical storm activity in the event it disrupts production in the Gulf of Mexico, which is home to 7% of U.S. natural gas production.
The Atlantic hurricane season runs from June 1 through November 30.
Meanwhile, 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 21 to 541, the lowest since September 1999.
The gas rig count is 42% 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.
Natural gas prices climbed 2.5% on Thursday, after the U.S. Energy Information Administration said that natural gas storage in the U.S. rose by 62 billion cubic feet last week, below market expectations for an increase of 64 billion cubic feet.
Inventories rose by 90 billion cubic feet in the same week a year earlier, while the five-year average change for the week is an increase of 87 billion cubic feet, according to U.S. Energy Department data.
Total U.S. gas supplies stood at 3.006 trillion cubic feet last week, narrowing the surplus to 29% above last year’s level and 27% above the five-year average level for that week.
The weekly gas report has been “bullish” in 10 of the past 11 weeks, raising expectations that record-high storage can be trimmed to more manageable levels in the 21 weeks left before winter withdrawals begin.
Natural gas prices are up nearly 30% 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 435 billion cubic feet to avoid breaching the government’s 4.1 trillion cubic feet estimate of total capacity.
Elsewhere in the energy complex, light sweet crude oil futures for August delivery traded at USD80.11 a barrel by close of trade on Friday, declining 6.56% on the week.
Heating oil for July delivery dropped 4.99% over the week to settle at USD2.532 per gallon by close of trade Friday.
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