U.S. GAS : Futures Rise on Hot Weather Forecast
07/09/2012| 03:31pm US/Eastern
--Another test of $3/mmBtu possible, analysts say
--Widespread above-normal midmonth temperatures expected
--Texas, a major gas user, expects below-normal temperatures
By David Bird
NEW YORK--Natural-gas futures prices rose 3.9% on Monday, as forecasts for above-normal temperatures in mid-July for much of the nation spurred hopes of rising gas consumption.
Prices regained a big chunk of the steep 16.9-cent per million British thermal unit loss that came in a tumultuous trading session Friday. That decline was the biggest single-day drop in dollar terms since Jan. 31 and it followed an intraday surge to $3.06/mmBtu, the highest price since Jan. 6.
Monday's prices failed to challenge the $3/mmBtu level, as strong demand prospects across the Midwest and Northeast were offset by expected below- normal temperatures in Texas, the nation's biggest market for natural gas from power generators.
There is "plenty of residual heat remaining despite fewer triple-digit readings expected over the next couple of weeks," but lower demand in Texas from utilities throws "a curve ball" to the market, said Pax Saunders, analyst at Gelber & Associates.
Natural-gas futures for August delivery on the New York Mercantile Exchange settled 3.9% higher, or 10.7 cents, at $2.883/mmBtu.
The rise was the biggest since June 18.
Traders said there is also much concern that prices near $3/mmBtu could cause some utilities to swing back to burning cheaper coal.
Mr. Saunders said the major population centers, where temperatures are expected to hit extremes compared with normal temperatures, tend to favor coal for power generation.
Still, he cautions, "don't be surprised if gas tests $3 again as we inch toward a weak injection report" that would be just a fraction of typical gains at this time of year. Strong demand last week could shrink the size of the injection into storage to "perhaps near 20 billion cubic feet" compared with 87 bcf last year and a five-year average of 90 bcf for the week.
The Energy Information Administration said preliminary April data show that the amount of power generated by burning gas was equal to the amount from coal for the first time as each fuel provided 32% of the nation's electricity generation. Natural gas prices slumped to a 10 1/2-year low of $1.90/mmBtu during April.
Record-high storage levels for this time of year continue to pressure prices. The EIA said gas inventory stands at 3.102 trillion cubic feet, despite a smaller-than-normal rise of 39 billion cubic feet in the week ended June 29. Gas storage levels are 24.1% above a year ago and 22.7% above the five-year average for this time of year.
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