US natural gas futures on Wednesday climbed for a third straight day to a four-month high on forecasts that power generators would use more of the fuel to meet rising air conditioning demand in the next two weeks. After rising almost 17 percent in the prior two days, including a front-month contract roll from the lower June to the higher July future, front-month gas futures for July delivery on the New York Mercantile Exchange rose 9.3 cents, or 4.1 percent, to settle at $2.381 per million British thermal units.
That was the highest for the front-month since mid-January, keeping it in oversold territory with a Relative Strength Index (RSI) over 70 for a second consecutive day for the first time since December. Analysts said prices were likely to remain low this year after a warm winter left stockpiles at record highs. To avoid filling storage caverns to capacity, producers are likely to cut output and power generators to burn more gas instead of coal, they noted.
In early estimates, analysts said utilities likely added 85 billion cubic feet of gas into storage during the week ending May 27. That compared with builds of 71 bcf in the prior week, 126 bcf a year earlier and a five-year average of 98 bcf. Spot prices at the Henry Hub have averaged $1.94 so far in 2016, the lowest start to a year since 1999. At $2.61, futures for the balance of 2016 remained below the $2.61 average in 2015, the lowest level since 1999. Still, that is the highest for the balance of the year since October.
The US power sector has been burning about 25.1 bcf per day so far this year, compared with 22.9 bcfd a year earlier, according to Thomson Reuters Analytics. Power generators used record amounts of gas in 2015 and are expected to burn even more this year, according to government estimates.