U.S. gas futures continue surge, hitting new 2012 high
Nicole Friedman, Dow Jones Newswires
NEW YORK--Natural-gas prices rose to the highest settlement in seven months Tuesday, with forecasts of extreme heat supporting hopes that demand for gas-powered electricity will stay strong.
Natural gas for August delivery on the New York Mercantile Exchange settled 7 cents higher, or 2.3%, at $3.187/MMBtu, the highest settlement price since Dec. 13.
Forecasts of above-normal temperatures in the next two weeks were mostly unchanged Tuesday, with private forecaster MDA EarthSat expecting continued heat across the eastern and central U.S.
Summer heat has increased the use of air conditioning, requiring power generators to burn more natural gas to meet demand. With 2012 on track to be the hottest year on record, above-normal temperatures have helped eat away at an oversupply of natural gas.
Total storage inventories are 17.5% above the five-year average for this time of year, down significantly from March, when they were 60% above the five-year average.
Tuesday marks the fifth straight session of gains in the gas market, with prices gaining momentum after closing above the psychologically important $3/MMBtu mark Friday.
This week's inventory data, scheduled to be released Thursday by the U.S. Energy Information Administration, will indicate whether demand for natural gas has persisted amid rising prices.
Analysts have cautioned that the current rally in prices could reverse course Wednesday if traders sell contracts ahead of the inventory report, betting that it will show a higher-than-expected injection into storage, said Phil Flynn of Price Futures Group.
"The real question we're looking at right now is, 'Will traders take profits ahead of the injection number?'" Mr. Flynn said.
Morgan Stanley on Tuesday raised its forecast for the 2012 average natural-gas price to $2.74/MMBtu from $2.40/MMBtu, noting that on average, temperatures have been 14% higher than normal since May.
However, the bank cautioned in a research note that current high natural-gas prices could prompt power generators to burn coal instead, lowering demand.
"Given the trade-off between price and coal-to-gas switching, today's higher weather-related demand does not remove enough inventory to resolve concerns" that the oversupply will persist through the end of the year, the bank said.