U.S. gas futures hit fresh six-month high, topping $3
Nicole Friedman, Dow Jones Newswires
NEW YORK--Natural-gas futures pushed above $3 per million British thermal units Friday for the first time in 6 1/2 months, as ongoing hot temperatures are expected to support demand for gas-powered electricity.
Scorching heat across much of the country has boosted air-conditioning use, increasing the need for gas-powered electricity and lowering the amount of natural gas in storage. On Friday, forecasts signaled that hotter-than-normal weather could continue into August.
MDA EarthSat, a weather forecaster, said the ongoing drought in the Midwest and Plains "could help enhance the intensity of hotter temperatures" in the next six to 10 days. And the National Oceanic and Atmospheric Administration's long-range forecasts show above-normal temperatures throughout August.
Natural gas for August delivery on the New York Mercantile Exchange settled 8.2 cents, or 2.7%, higher at $3.081/MMBtu, the highest settlement price since Jan. 4.
Prices have tested the $3/MMBtu mark for the past two trading sessions but failed to push above the round number until Friday. Prices well below $3 made natural gas cheaper than coal, leading some utilities to switch to the less-expensive fuel. But at current price levels, some analysts had grown concerned that power generators will switch back to coal.
However, natural gas may still be cheaper than coal in many locations at current prices, said Tim Evans, an analyst for Citi Futures Perspective.
"The whole coal-to-gas switching issue is more like a dimmer switch than an on-off toggle switch," he said.
Natural-gas prices increased 7.2% this week, and despite a decline to decade lows in April, natural gas is up 3.1% for the year. Friday's gains suggest that technical traders, who focus on patterns gleaned from price charts, could help extend the rally to as high as $3.24/MMBtu, said energy-trading adviser Jim Ritterbusch of Ritterbusch & Associates.
Still, the current market optimism could fade quickly if temperatures don't meet expectations, said Teri Viswanath, senior natural-gas strategist for BNP Paribas.
"There's nothing magic about a $3 price level," Ms. Viswanath said. "The real question is: As we get into next week, if we start to see less-constructive fundamentals, will prices be able to maintain?"