Natural gas futures surge 5% in early trade to hit 4-week high

Natural gas futures soared to a four-week high during U.S. morning trade on Tuesday, as market participants looked ahead to a U.S. government report on natural gas supplies scheduled for later in the week. On the New York Mercantile Exchange, natural gas futures for delivery in October traded at USD2.939 per million British thermal units during U.S. morning trade, soaring 4.5%. It earlier rose by as much as 5% to trade at a session high of USD2.950 per million British thermal units, the strongest level since August 9. Natural gas prices rallied 4.8% on Monday, as a bullish outlook for Thursday’s storage data prompted traders to return to the market to cover bets on falling prices, a move known as short covering. Early injection estimates for this Thursday’s storage data range from 22 billion cubic feet to 55 billion cubic feet, which is significantly lower than last year's build of 80 billion cubic feet. The five-year average change for the week is an increase of 72 billion cubic feet. Also supportive was the aftermath of Hurricane Isaac, which shut much of the natural gas production in the Gulf of Mexico. Nearly 10% of gas production remained shut on Sunday, U.S. regulators said. Some technical buying also contributed to gains, after futures moved in to oversold territory. Natural gas prices fell 4.1% last week, the sixth weekly decline in the past seven weeks. 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, losing almost 17% after extended weather forecasts pointed to milder weather across most parts of the U.S. Updated weather forecasts Monday predicted below-normal temperatures in parts of the Midwest in the coming week and above-normal readings along both coasts. 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. Despite the strong two-day gain, natural gas futures were likely to come under pressure in the near-term amid ongoing concerns over bloated U.S. inventory levels. Total U.S. gas supplies stood at 3.402 trillion cubic feet as of last week, 13.1% above last year’s level and 10.7% 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. The storage surplus to last year will have to be cut by at least another 150 billion cubic feet in the 12 weeks left before winter withdrawals begin to avoid breaching the government's 4.1 trillion cubic feet estimate of total capacity. Elsewhere on the NYMEX, light sweet crude oil futures for delivery in October rose 0.45% to trade at USD96.99 a barrel, while heating oil for October delivery added 0.1% to trade at USD3.169 per gallon.

Courtesy: ForexPros