US natural gas futures jumped 6 percent to settle near 9-month highs on Thursday, after a smaller-than-expected weekly storage build and forecasts the power sector will keep burning record amounts of the fuel to meet air conditioning demand in coming weeks. Gas futures crossed the $2.60 mark the first time since September after the US Energy Information Administration said utilities added 65 billion cubic feet supply to storage last week. Analysts polled by Reuters had expected a 78-bcf rise.
Storage build in the prior week was 82 bcf. The current number was also smaller than the 117 bcf rise seen a year ago and 96 bcf build averaged over 5 years. "The data for last week implies a somewhat tighter supply-demand balance with bullish implications for (future) reports to follow," Tim Evans, energy futures specialist at Citi Futures, said in a note.
Front-month gas futures for July delivery on the New York Mercantile Exchange settled up 14.9 cents, or 6 percent, at $2.617 per million British thermal units. The session high was $1.62 mmBtu, the highest since September 29. Relatively high summer temperatures forecast for the coming weeks should keep air conditioners running more frequently and at stronger cooling settings, said analysts. The consequent rise in power usage should also mean less gas in storage, they said.
Since becoming the front-month on May 27, the July contract has gained 17 percent due to rising power consumption and declining production. This has kept the contract in overbought territory with a Relative Strength Index above 70 for an eighth consecutive day for the first time since December 2013. The 2017 calendar strip also continued to trade over both 2018 and 2019.
Despite the rally, 2016 gas are still expected to average below the 16-year low of $2.61 seen in 2015. That could pressure some producers to cut output further as the year progresses, and more burning of gas instead of coal. Spot gas prices at the Henry Hub have averaged $1.96 so far in 2016, the lowest start to a year since 1999. The balance of 2016, meanwhile, was trading at $2.72, the highest since September 2015.
The US power sector has burned on average 25.4 bcf per day so far this year, topping last year's record 23.0 bcfd during the same time, according to Thomson Reuters Analytics. The increase in power sector gas burn has come despite a sharp decline in coal futures to $39.63 per ton from $44.80 in late May.
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