US natural gas futures rose 2 percent on Wednesday, rebounding from two straight of days of losses, after worries about storm impact on oil and gas installations in the US Gulf of Mexico. The market was also supported by warmer-than-normal weather forecasts indicating utilities could continue burning high amounts of gas to feed power demand for air conditioning late into the summer. Front-month gas futures for October delivery on the New York Mercantile Exchange settled up 6 cents, or 2.1 percent, at $2.887 per million British thermal units.
For August, the market posted just a modest gain after sharp price drops in the first two weeks and steep rebounds in the last two. But with autumn and colder weather heralding heating demand, beginning in three weeks, the outlook for gas in September and beyond could improve, though the market may remain volatile, hedge fund managers told Reuters.
Both European and US prediction models forecast higher-than-usual late summer temperatures in the next two weeks. "The natural gas inventory surplus versus the five-year average has eroded at a near record space. So that could be fuelling buying interest since it appears the stage is set for a strong rally this winter," said Alex Bozich, director of research and trading at Royal Blue Capital in Kansas City, Missouri.
"However, this recent price spike is too much, too soon," he said, referring to speculative net long positions in NYMEX gas which hit two-year highs in early August only to sharply correct later. "We could see a pretty dramatic pull back over the next few weeks."
US utilities likely added 41 billion cubic feet of natural gas to storage last week, extending six-year lows in summer inventories, a Reuters poll showed ahead of a weekly supply-demand report on gas due from the government on Thursday. "A bullish storage number will have the market retest $2.95 while a bearish number will have the market break below $2.80," said Kent Bayazitoglu, director of market analytics at energy consulting firm Gelber & Associates in Houston.