-- Above-normal Eastern U.S. temperatures through early June
-- Bargain-hunters step in after biggest price drop since late March
-- Market awaits gas inventory data Thursday
By David Bird
Natural gas futures prices settled 3.8% higher Tuesday, as forecasts for above-normal temperatures in the Eastern half of the country into early June lured bargain-hunters into the market.
"Another day, another zig to the prior session's zag," said Pax Saunders, analyst at Gelber & Associates, as erratic prices registered a third day of violent swings that began with 5.7% rise Friday. Prices posted the biggest penny-for-penny drop since March 29 on Monday, losing 13.3 cents, or 4.9%.
That selloff was sparked by worries that gas had become too pricey near $2.75 per British thermal units -- its highest price since January -- and would lead utilities to switch back to greater use of coal. Strong utility demand for gas lifted prices by around 44% from 10 1/2 month lows of below $1.90/mmBtu last month.
After its roller-coaster ride from oversold to overbought, analysts said gas is struggling to find its footing amid record-high presummer inventories and hopes that weather-related demand will ignite a sustained rally by trimming bloated inventories.
Natural gas for June delivery on the New York Mercantile Exchange settled 9.8 cents higher, at $2.707/mmBtu.
Market bulls are putting faith in Mother Nature, who hasn't exactly been friendly so far this year. The slump to the lowest prices since 1992 came as April temperatures clocked in as the third warmest on record in the U.S. The National Oceanic and Atmospheric Administration said average temperatures for the January-to-April period this year were the warmest ever recorded over the first four months of the year, and 8.4% higher than the long-term norm.
"We are in a tightening market it would seem, as gas-fired power generation ramps up and the storage surplus is being whittled down, but given the basis we are starting from (sky-high surpluses) and a superhot summer last year to be benchmarked against, you would think it prudent for prices to wait for higher temperatures, higher hurricane activity, and lower production before buying this thing," said Matt Smith, analyst at Summit Energy.
"The more prices rise, the more likely we may see production come back online, and coal-to-gas switching reverse...boosting supply, reducing demand," he said.
Analysts on Tuesday were puzzling out forecasts for how much of an increase in gas stockpiles occurred last week. The widely watched storage data will be released by the Energy Information Administration at 10:30 a.m. EDT Thursday.
Gas in storage stands at 2.667 trillion cubic feet, a record high for this time of year, and 40.8% above the five-year average. Last month, the surplus was more than 55% above the five-year average.
Analysts generally expect a smaller increase than the 101 billion cubic feet rise reported for the corresponding week in 2011 and the five-year average gain of 97 bcf.
-By David Bird, Dow Jones Newswires; 212-416-2141; [email protected]