--Below-normal mid-July temperatures expected in Texas, a major gas user
(Updates to add cash-market prices in the final paragraph.)
By David Bird
NEW YORK--Natural-gas futures prices rebounded Monday, as forecasts for above-normal temperatures in mid-July for much of the nation spurred hopes of rising gas consumption.
Prices regained about half of the steep 16.9 cents per million British thermal units loss that came in a tumultuous trading session Friday. That decline was the biggest single-day drop in dollar terms since Jan. 31, and it followed an intraday surge to $3.06/mmBtu, the highest price since Jan. 6.
Some analysts said Friday's drop was overdone and see a broadening trading range from $2.50-$3.00/mmBtu.
Natural-gas futures for August delivery on the New York Mercantile Exchange were 9 cents higher, at $2.866/mmBtu.
But there is still much caution, so at prices near $3/mmBtu gas could lose the competitive price advantage it has held over coal in the electricity generating sector.
The Energy Information Administration said preliminary April data show the amount of power generated by burning gas was equal for the first time to the amount from coal, as each fuel provided 32% of the nation's electricity generation. Natural-gas prices slumped to a 10.5-year low of $1.90/mmBtu during April.
"With warmer summer weather and increased electric demand for air conditioning, demand will increase, requiring increased output from both coal- and natural-gas-fired generators," the EIA said.
But forecasts from the National Weather Service show that Texas, which accounts for 18.5% of the nation's gas-fired electricity generation, will see below-normal temperatures from July 14-22, while temperatures will again heat up in other parts of the nation. Well-above normal temperatures are expected in the Great Lakes and Northeast from July 14-18, with above-normal temperatures in most areas for the next 6-14 days.
Analysts said the Texas cool down could keep a rally in check.
"This market could move into a choppy, wide-swinging trading phase this week in which values could be little changed by mid-month, despite some high price swings," said Jim Ritterbusch, head of Ritterbusch & Associates. "This type of pricing scenario would likely be facilitated by an evolving contrast between Friday's technical breakdown and fundamentals that still appear to be leaning in a bullish direction.
"We are shifting to a cautiously bearish trading stance while we also view Friday's selloff as exaggerated," he said in a note to clients. "As a result, we will anticipate a price rebound into the $2.90-3.00 zone, where fresh short positions would be advised. Eventual downside price possibilities develop to the $2.50 area per the two nearest futures contracts."
Record-high storage levels for this time of year continue to pressure prices. The EIA said gas inventory stands at 3.102 trillion cubic feet, despite a smaller-than-normal rise of 39 billion cubic feet last week. Gas storage levels are 24.1% above a year ago and 22.7% above the five-year average for this time of year.
Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $2.8725/mmBtu, according to IntercontinentalExchange, compared with Friday's average of $2.91875/mmBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $3.005/mmBtu, down from $3.205/mmBtu.
