Natural gas prices rose to a one-year high Friday as summer demand keeps boosting prices.
Natural gas posted its fifth straight week of gains. Front-month prices at their peak Friday had gained 52% in only a month since the June contract expired at just $1.963/mmBtu on May 26.
Natural gas for August delivery settled up 6.3 cents, or 2.2%, at $2.987 a million British thermal units on the New York Mercantile Exchange. It is the highest settlement since May 2015.
“The rally has caught me off guard by its strength,” said Gene McGillian, research manager at Tradition Energy. “It seems like the momentum will carry us through” to $3/mmBtu.
Only a few months ago natural gas had set a record low, inflation-adjusted price for its history of Nymex trading. A warm winter had caused tepid heating demand, and so much gas was built up in storage that stockpiles set a record high for the end of winter. Even now, production is high enough that some expect stockpiles by November to set a record high for the start of the winter.、
The La Paloma plant in McKittrick, Calif., uses natural gas to generate electricity. Forecasts for higher-than-average temperatures in the U.S. have driven up the price of natural gas on increased demand for gas-fired power. PHOTO:HANDOUT/REUTERS
But production has fallen slightly from its record pace in February and investors have bet hard that the market will rebalance within the next year. Weather forecasts widely predict higher-than-average temperatures throughout this summer, driving demand for gas-fired power to run air conditioners.
Weather has already been hotter than normal in many parts of the country. And unexpectedly low nuclear, wind and hydropower production have also kept feeding demand for gas-fired power even as gas prices have risen and sent more power generators to burning coal.
Friday weather updates from both MDA Weather Services and Commodity Weather Group LLC—two widely watched private forecasters—are showing temperatures as much as 8 degrees Fahrenheit above normal spreading across nearly the entire country in the first half of July. The hottest of those temperatures are covering large parts of the southeast, strengthening demand expectations in what analysts say is the biggest region for gas-fired power.
“At some point the fear of oversupply went away. That led the way for prices to move higher,” said Kent Bayazitoglu, analyst at the energy-consulting firm Gelber & Associates in Houston. “We think it’s probably been a bit too much too fast and prices will probably soften in July.”
The U.S. Energy Information Administration said Thursday that stockpiles grew last week, rising to 3.1 trillion cubic feet as of June 24. That is 23% above levels from a year ago and 25% above the five-year average for the same week.
By TIMOTHY PUKO
WSJ
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