Forexpros – Natural gas futures surged nearly 4% during U.S. afternoon trade Monday, recouping a portion of the previous session’s steep decline after updated weather forecasts called for above-normal temperatures in the coming week triggering bargain hunting.
On the New York Mercantile Exchange, natural gas futures for delivery in August traded at USD2.889 per million British thermal units during U.S. morning trade, surging 3.98%.
Prices hit a seven-month high of USD3.023 on Friday, before turning lower on profit taking amid concerns over reduced power demand from utilities and power generators.
Futures plunged almost 5.5% in the previous session after weather forecasts showed moderating temperatures across most part of the country in the coming week.
However, prices recouped a significant portion of those losses 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.
Prices were also supported after last week’s storage data, which showed U.S. gas supplies rose by a less-than-expected 39 billion cubic feet.
Total U.S. gas supplies stood at 3.102 trillion cubic feet last week, narrowing the surplus to last year’s levels to 24.1%l and 22.7% above the five-year average level for that 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 400 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.
Early injection estimates for this week’s storage report range from 30 billion cubic feet to 45 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.
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.
Speculation that utility providers in the U.S. were switching from pricier coal to cheaper natural gas helped boost prices off a 10-year low of USD1.902 hit in mid-April.
Natural gas prices are up nearly 35% since touching a decade-low on April 20.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in August rose 0.7% to trade at USD85.04 a barrel, while heating oil for August delivery added 0.3% to trade at USD2.718 per gallon.
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