EG: U.S. GAS: Prices Up Modestly After Monday's Sharp Selloff
--Hot temperatures to moderate soon in some regions
--High storage levels weigh on market
--Price near $3/mmBtu stirs competition from coal
By David Bird
NEW YORK--Natural-gas futures prices were up modestly Tuesday after Monday's sharp 7.3-cent decline, as forecasts call for moderating temperatures in coming days in some parts of the nation.
The blanket of above-normal temperatures across the central U.S. that early this month pushed prices above $3 per million British thermal units for the first time since January will remain in place. But the National Oceanic and Atmospheric Administration's near-term forecasts show a return to normal temperatures in the South from July 22-26. In July's final days, above-normal temperatures will slip to normal levels in the Northeast and in parts of the Southwest, while the South heats up again, the agency said.
Traders said the temperatures swings are likely to shrink the aggressive demand for natural gas from electricity generators who are burning the fuel to meet stronger customer power demand for running air conditioners. That means the market's focus is likely to return to the huge storage overhang that has snuffed out past rally attempts and kept prices nearly 40% below year-ago levels.
"For now, prices focus on storage still 20% above last year and the five-year average and staunch domestic production levels," said Matt Smith, analyst at Summit Energy.
Natural gas futures for August delivery on the New York Mercantile Exchange were 1.5 cents higher, at $2.816/mmBtu. Prices moved in a $2.72-$2.822 range since Monday's settlement. Prices failed for a third day Monday to break through the $2.92/mmBtu levels, spurring a wave of selling.
The Energy Information Administration said last Thursday gas inventory stands at 3.14 trillion cubic feet, despite a smaller-than-normal rise of 33 billion cubic feet reported a week ago. Gas storage levels are 21.2% above a year ago and 19.7% above the five-year average for this time of year.
Jim Ritterbusch, head of Ritterbusch & Associates, said prices now appear stuck in a broad $2.50-$3/mmBtu range. At the upper end of the span, gas faces strong competition from coal. Electricity generators have sharply reduced their coal use as gas prices have tumbled, but could crank up their buying on favorable prices.
"Although we continue to have difficulty in constructing a pricing scenario that would sustain value above the $3 level, we are having similar difficulty in building a case for fresh summer lows without the assistance of cooler temperature forecasts," Mr. Ritterbusch said.
Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $2,825/mmBtu, according to IntercontinentalExchange, compared with Monday's average of $2.90375/mmBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $3.32/mmBtu, down from $3.43/mmBtu.
