US natural gas futures rose over 3pc to a seven-week high on Tuesday on forecasts for warmer weather and cooling demand next week that was higher than previously expected.
Front-month gas futures for October delivery on the New York Mercantile Exchange (NYMEX) rose 7.3 cents, or 3.2pc, to settle at $2.358 per million British thermal units, their highest close since July 15.
That put the contract into overbought territory for the first time since November 2018 and cut the premium of November 2019 futures over October to its lowest since November 2018.
Before Tuesday's gains, futures have mostly traded near multi-year lows since May because record production allowed utilities to inject huge amounts of gas into storage, shrinking a massive inventory deficit and removing concerns about shortages this winter even though power demand and liquefied natural gas (LNG) exports are on track to hit all-time highs this year.
The amount of gas in inventory has remained below the five-year average since September 2017.
It fell as low as 33pc below that average in March 2019. But with production expected to keep growing, analysts said, stockpiles should reach a near-normal 3.7 trillion cubic feet (tcf) by the end of the summer injection season on Oct. 31.
As stockpiles quickly refill, gas speculators last week boosted their net short positions on the NYMEX and Intercontinental Exchange close to the record high of 238,996 positions hit in mid-August as they cut net long positions on the NYMEX to their lowest since November 2011, according to US Commodity Futures Trading Commission (CFTC) data from Refinitiv.
In the Atlantic, Hurricane Dorian grew and picked up speed on Tuesday and was forecast to come “dangerously close" to Florida's coast after pounding Grand Bahama Island for about a day, killing at least five people. The storm, however, has not yet caused significant power outages in Florida.
With slightly warmer weather expected, data provider Refinitiv boosted its forecast for average demand next week from 85.8 billion cubic feet per day (bcfd) to 86.4 bcfd with power generators projected to burn more fuel to meet higher air conditioning use.
That compares with a demand forecast of 88.4 bcfd during the even warmer weather this week.
Gas flows to US LNG export plants, meanwhile, slipped to 6.1 bcfd on Monday due mostly to a decline at Cheniere Energy Inc's Sabine Pass in Louisiana, down from a record high of 6.8 bcfd last week.
Traders said they expect the LNG Jurojin tanker, which entered the Freeport harbor on Friday, will be the first vessel to pick up a cargo at the Freeport LNG plant. The facility started producing LNG over the past couple of weeks.
Gas production in the Lower 48 states, meanwhile, edged up to 92.8 bcfd on Monday from a near three-week low of 91.4 bcfd last week, according to Refinitiv.
That compares with an all-time high of 93.0 bcfd on Aug. 19.
Analysts said utilities likely added 79 billion cubic feet (bcf) of gas into storage during the week ended Aug. 30.
That compares with an injection of 64 bcf during the same week last year and a five-year (2014-18) average build of 66 bcf for the period.
If correct, last week's increase would boost stockpiles to 2.936 tcf, 2.9pc below the five-year average of 3.023 tcf for this time of year.