US natural gas futures rose almost 2 percent on Monday despite moderate weather forecasts, as traders covered shorts after the market lost more than 5 percent over the past two weeks on stronger-than-normal storage builds and record production forecasts.
Front-month natural gas futures on the New York Mercantile Exchange gained 7.4 cents, or 1.7 percent, to $4.487 per million British thermal units at 09:54 am EDT (1354 GMT). The June NYMEX contract traded between $4.39 and $4.50 per mmBtu, according to Reuters data. Despite Monday's gain, the front-month is still down about 7 percent for the month.
Analysts expect utilities added between 88 and 116 billion cubic feet of gas into storage last week, with an early average of about 100 bcf. That is well above the 90 bcf year ago and five-year average. Gas in storage stands at 1.160 trillion cubic feet, still an 11-year low for this time of year. MDA Weather Services forecast heat will build in the US Plains and Midwest over the next five days with a hot Memorial Day weekend seen in California. Over the next two weeks, US weather models forecast warmer than normal weather with 107 cooling degree days, over the normal 91. Heating degree days are only expected to reach 23, well below the normal 47, according to Thomson Reuters Analytics.
The June 2014 contract traded at a 0.3-cent per mmBtu discount to the July 2014 contract on the NYMEX, the smallest discount ever for these contracts, according to Reuters data.
The premium of the NYMEX front-month gas contract over the front-month Appalachian coal contract climbed to $1.87 per mmBtu from $1.79 Friday, according to Reuters data. Traders consider a gas premium of $2 over coal as wide enough to offset the cost of coal transportation and the higher efficiency of gas plants.
Next-day gas at the Henry Hub, the benchmark US supply point in Louisiana, gained 9 cents to average $4.52 per mmBtu on the IntercontinentalExchange. In New York, next-day gas was bid at $3.10 and offered at $3.45 per mmBtu, which would be up for the first time in eight trading days. On Friday, New York fell for a seventh straight day, down 15 cents to average $2.98 per million British thermal units, the lowest since September 2012. Projected water runoff at The Dalles Dam on the Columbia River in Oregon held at 109 percent of normal for April-September, the US Northwest River Forecast Center said on Sunday.
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