U.S. Gas Gains as Hot Weather Seen Stoking Demand, Trimming Glut
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U.S. natural gas futures advanced, touching a 37-week intraday high, as hotter forecasts signaled increased demand for the power-plant fuel and stoked speculation that there will be more below-average supply gains ahead.
Warmth will push across the lower 48 states over the next two weeks, a change from forecasts late last week, said MDA Weather Services. Dallas’s high on June 17 will be 98 degrees Fahrenheit (37 Celsius) and four days later Washington will reach 92, 6 above normal for both cities on those days, according to AccuWeather Inc.
Gas prices have jumped 13 percent since May, rallying for the fourth straight month, as stockpile gains came in below average for five straight weeks. Inventory gains will continue to trail historic norms through July 1 based on weather forecasts, according to Citi Futures Perspective. Electricity generators are already burning a record amount of the fuel for this time of year as above-normal temperatures stoke power demand after a unprecedented shutdown of coal plants last year, government data show.
“We have been talking about summer being above-normal for a good month or so and you are starting to see that show up; we need to keep that on a consistent basis,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut. “The market still has momentum on the upside and I think we will continue to push higher.”
Gas futures for July delivery rose 2.9 cents, or 1.1 percent, to settle at $2.585 per million British thermal units on the New York Mercantile Exchange. Futures earlier rose to $2.635, the highest intraday price since Sept. 29.
Gas inventories totaled 2.972 trillion cubic feet on June 3, U.S. Energy Information Administration data last week showed. The supply glut to the five-year average fell to 32.1 percent, the least since February, after a string of storage injections that came in below normal.
The stockpile gains will become progressively smaller in the next four government reports, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients Monday.
As gas prices climb past $2.50 per million Btu, the risk is that power generators may switch back to burning coal in places like Texas, said McGillian. Higher prices also raise concerns that producers may start some fresh drilling, but so far “we haven’t seen some real signs of that occurring.”
The 14-day relative strength index, a technical momentum indicator, was at 71.78 at 2:38 p.m. The RSI has been holding for a week above 70, a threshold that some traders may see as a sell signal, the longest such period since January 2014.
“Natural gas is a market that has a very strong tendency toward trending and it’s been trending higher and higher,” said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. “This is a market that has shown strong technical support.”
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