Natural gas extended its rally on Tuesday as updated weather forecasting models continued to point at the beginning of a warming trend across the northern and eastern parts of the U.S. through late August.
On the New York Mercantile Exchange, natural gas for September delivery surged to $3.324 per million British thermal units at 6:30 GMT, up 0.94% on the day. Futures ranged between days high and low of $3.333 and $3.292 per Mmbtu respectively. The fuel soared 1.57% on Monday, extending current weeks decline to over 2.8% after falling more than 15% in the preceding three five-day periods.
Natural gas was pressured during the last week as weather forecasters predicted cooler-than-normal temperatures across most of the U.S. However, weather predictions shifted yesterday towards higher than usual temperatures in the eastern and northern parts of the U.S. between August 17 and August 26. According to AccuWeather Inc., peak temperatures in New York may rise to 92 degrees Fahrenheit on August 22, 10 above the average, while Boston may experience an 89 degrees Fahrenheit temperature high, also 10 above usual.
When above-normal temperatures are expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of the U.S. electricity generation. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand.
Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said for Bloomberg on Monday: “We have more warmth coming into the equation and that’s supporting prices. We were getting ahead of ourselves on the downside.”
Market players will also be keeping a close eye on EIAs weekly stockpiles report. Last week, the government agency said that U.S. gas stockpiles rose by 96 billion cubic feet in the week ending August 2, surpassing analysts’ expectations. Total inventories equaled 2 941 billion cubic feet, 9.2% below last year’s 3 238 billion cubic feet during the comparable week. Last week’s figure however rose 0.7% above the five-year average storage at 2 921 billion cubic feet, marking the first surplus since March.
Early injection estimates for this week’s build range between 62 billion and 77 billion cubic feet, well above last year’s 20 billion during the comparable week and the five-year average gain of 42 billion cubic feet. If confirmed, these numbers could offset some of the previous weekly gains that have built up on the warmer-than-usual weather in the U.S.
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