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Natural gas futures rally to 4-week high with storm activity in focus

CommoditiesSep 04, 2012 10:43AM ET
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This article has already been saved in your Saved Items - Natural gas futures rallied to the highest level in nearly four weeks during U.S. morning trade on Tuesday, as market players monitored renewed tropical storm activity in the Gulf of Mexico, amid concerns over a disruption to supplies from the region.  

Traders also focused on updated weather forecasts to gauge the strength of late-summer cooling demand.

On the New York Mercantile Exchange, natural gas futures for delivery in October traded at USD2.865 per million British thermal units during U.S. morning trade, rallying 2.3%.       

It earlier rose by as much as 3% to trade at a session high of USD2.885 per million British thermal units, which was the strongest level since August 10.

The U.S. National hurricane Center said earlier Tropical Storm Leslie could strengthen into a hurricane later in the week, as it headed toward Bermuda in the Atlantic Ocean.

The system packed maximum sustained winds of 65 miles per hour, below the minimum 74 mile per hour speed of a Category 1 hurricane.

Leslie is the 12th storm of the Atlantic hurricane season, which runs from June 1 to November 30.

Last week, Hurricane Isaac struck Louisiana with high winds and heavy rain, shutting almost 75% of natural gas output in the Gulf of Mexico.

Production in federal waters in the Gulf of Mexico account for about 7% of natural gas output and prices typically spike when storms threaten production.

Prices found further support after updated weather forecasts predicted some late-summer heat returning to key parts of the U.S. in the next five days, raising the prospect of increased gas demand in the near-term.

The National Weather Service's six- to 10-day outlook released Monday predicted for mostly normal temperatures across the Northeast and Midwest, and above-normal readings in parts of the West Coast.

Above-average summer temperatures increase the need for gas-fired electricity to cool homes, boosting demand for natural gas.

Despite the day’s gains, prices were expected to remain under pressure amid ongoing concerns over bloated U.S. inventory levels.

Total U.S. gas supplies stood at 3.374 trillion cubic feet, 14.6% above last year’s level and 12% above the five-year average level for the week.

Inventory didn't top the 3.3-trillion cubic feet level in 2011 until the end of September, 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.

The storage surplus to last year will have to be cut by at least another 150 billion cubic feet in the 13 weeks left before winter withdrawals begin to avoid breaching the government's 4.1 trillion cubic feet estimate of total capacity.

Early injection estimates for this week’s storage data range from 21 billion cubic feet to 57 billion cubic feet, compared to last year's build of 62 billion cubic feet. The five-year average change for the week is an increase of 60 billion cubic feet.

A bout of extreme heat across much of the U.S. over the past two months helped boost natural gas prices above the key USD3.00-level in recent weeks. 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, losing almost 14% after extended weather forecasts pointed to milder weather across most parts of the U.S.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in October dropped 1.1% to trade at USD95.39 a barrel, while heating oil for October delivery shed 0.15% to trade at USD3.174 per gallon.

Natural gas futures rally to 4-week high with storm activity in focus

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