Forexpros – Natural gas futures traded higher during U.S. afternoon hours Monday, hitting a four-week high earlier, as gas drillers shut down production in the Gulf of Mexico as a precaution ahead of Tropical Storm Debby.
Forecasts for warmer weather across key parts of the U.S. provided further support.
On the New York Mercantile Exchange, natural gas futures for delivery in July traded at USD2.719 per million British thermal units during U.S. afternoon trade, rallying %.
It earlier rose by as much as 2.65% to trade at USD2.728 per million British thermal units, the highest for the front-month contract since May 24.
The July contract is due to expire at the end of trading on Wednesday, June 27.
Meanwhile, the more actively traded contract for August delivery surged 2.9% to trade at USD2.744 per million British thermal units. The August contract rose by as much as 3.2% earlier to trade at a session high of USD2.773.
Natural gas traders continued to monitor the path of Tropical Storm Debby as it hovered in the Gulf of Mexico. The National Hurricane Center reported Debby was gaining strength on Sunday, hitting the northeastern Gulf coast with high winds and heavy rain.
Oil and gas driller British Petroleum said its production in the Gulf would be completely shut in by the middle of Sunday. Exxon Mobil said it shut in nearly seven million cubic feet of gas production.
According to the U.S. Bureau of Safety and Environmental Enforcement, about 23% of gas and oil production in the Gulf had been shut in as of Sunday.
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. Prices usually gain when severe storms threaten production in the region.
Meanwhile, prices found further support from forecasts showing warmer-than-normal weather across most parts of the U.S. in the coming ten days.
The U.S. National Weather Service’s six- to 10-day outlook issued on Sunday called for above-normal readings for most of the U.S., with below-normal readings only along the West Coast.
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.
Indications that North American gas producers were cutting back on production in response to lower prices also contributed to gains.
Industry research group Baker Hughes said on Friday 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 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 on the NYMEX, light sweet crude oil futures for delivery in August dropped 0.53% to trade at USD79.36 a barrel.
&nb
Forexpros
