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Natural gas futures - Weekly outlook: September 24 - 28

CommoditiesSep 23, 2012 11:26AM ET
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This article has already been saved in your Saved Items - Natural gas futures rose sharply on Friday, boosted by a bout of bargain buying ahead of the weekend as traders closed out bets on lower prices after futures moved into oversold territory.  

On the New York Mercantile Exchange, natural gas futures for delivery in October rose more than 3% on Friday to settle at USD2.897 per million British thermal units by close of trade.

Earlier in the day, prices hit a session high of USD2.898 per million British thermal units, the strongest level since September 18.

Despite Friday’s gains, the October contract lost 1.9% on the week. The October contract is due to expire at the end of trading on Wednesday, September 26.

Meanwhile, the more actively traded contract for November delivery settled the week at USD3.071 per million British thermal units, the highest level since August 9.

On the week, November natural gas prices rallied 3.75%.

Natural gas prices came under heavy selling pressure earlier in the week, as forecasts showing cooler temperatures across much of the U.S. through late-September and ongoing concerns over bloated inventory levels weighed on the commodity.

But some bargain buying helped lift prices off the lows, after futures moved into oversold territory. Technical traders said prices had fallen too far, too fast and were due for a technical bounce.

Despite Friday’s gains, prices were expected to face strong resistance in the near-term as updated weather forecasts predicted normal or above-normal temperatures for most of the country into early October.

Natural gas demand typically rises in the summer as air-conditioning use boosts utility demand, then sinks in the fall as demand weakens ahead of the peak winter heating season.

Ongoing concerns over bloated U.S. inventory levels were also likely to cap any significant gains in the near-term.

The U.S. Energy Information Administration said in its weekly supply report published Thursday that natural gas storage in the U.S. rose by 67 billion cubic feet last week, just above market expectations for an increase of 64 billion cubic feet.

Last year, stocks rose by 89 billion cubic feet, while the average rise in the week over the previous five years was 73 billion cubic feet.

Total U.S. gas supplies stood at 3.469 trillion cubic feet, 10% above last year’s level and 9% above the five-year average level for the week.

Inventory did not top the 3.4-trillion cubic feet level in 2011 until October 5, with stocks peaking at a record 3.852 trillion cubic feet in November of last year.

Market analysts have warned that without strong demand through the rest of the summer cooling season, gas inventories will reach the limits of available capacity later this year.

Early injection estimates for this week’s storage data range from 69 billion cubic feet to 83 billion cubic feet, compared to last year's build of 104 billion cubic feet. The five-year average change for the week is an increase of 76 billion cubic feet.

A bout of extreme heat across much of the U.S. earlier in the summer helped boost natural gas prices above the key USD3.00-level in late-July. Prices rallied to a 2012 high of USD3.275 per million British thermal units on July 31.

But futures have come under heavy selling pressure since the start of August, after extended weather forecasts pointed to milder weather across most parts of the U.S.

Elsewhere in the energy complex, light sweet crude oil futures for November delivery traded at USD93.06 a barrel by close of trade on Friday, losing 6% on the week.

Heating oil for November delivery fell 3.6% over the week to settle at USD3.124 per gallon by close of trade Friday.

Natural gas futures - Weekly outlook: September 24 - 28

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