US natural gas futures on Tuesday climbed to a 10-month high on forecasts for continued hot weather that is expected to keep power demand for gas at record levels to meet air conditioning use through early July. Out West, California this week passed the first test of its plans to keep the gas flowing and lights on during an early summer heat wave.
After rising 27 percent over the past four weeks, front-month gas futures rose 2.1 cents, or 0.8 percent, to settle at $2.768 per million British thermal units. That was the highest close since August. That kept the front-month in overbought territory with a Relative Strength Index over 70 for a 16th day in a row for the first time since August 1999.
To prevent storage caverns from filling to maximum capacity after a warm winter left stockpiles at record highs, analysts estimated prices would remain relatively low this year to pressure producers to cut output and encourage power generators to burn more gas instead of coal. The inventory surplus, however, has narrowed since the start of the injection season in April as power generators used record amounts of gas to meet heavy air conditioning use instead of coal.
"Weaker injections and summer heat are easing concerns of a lack of storage this injection season. In general, the market no longer believes that the market is oversupplied," Kent Bayazitoglu, director of market analytics at energy consulting firm Gelber & Associates in Houston, said in a note. He warned, however, that "right around now the summer slide pattern starts to takes hold. The summer slide, the most reliable of all the seasonal natural gas patterns, calls for prices to weaken from mid to late June through mid July."
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