US natural gas futures jumped to an over two-week high on Friday as weather forecasts turned even hotter, overshadowing a surge in gas production.
Front-month gas futures for August delivery on the New York Mercantile Exchange rose 10.5 cents, or 4.6 percent, to $2.395 per million British thermal units (mmBtu) at 9:59 a.m. EDT. Earlier in the session, they touched a peak of $2.4 mmBtu, their highest since June 18.
"This market appears to be tilting further in a bullish direction, at least over the near term, with the help of some supportive updates to the short term temperature views," said Jim Ritterbusch, president of Ritterbusch and Associates.
"This also continues to feel like a market that has discounted a lot of negative news to the point that any significant surprises are apt to be bullish," Ritterbusch added.
Refinitiv projected demand in the Lower 48 states would rise from 87.4 bcfd this week to 90.1 bcfd next week. That compares with its forecasts on Wednesday of 87.4 bcfd for this week and 90 bcfd for next week.
Demand is expected to rise next week compared with this week because the weather is warming across the nation for the summer, boosting the amount of gas the power sector needs to burn to keep air conditioners humming.
Despite the increase in front-month futures, traders have noted the contract has held near multiyear lows since the end of May as near-record production and moderate weather allowed utilities to inject huge amounts of gas into stockpiles, shrinking a massive storage deficit and removing any concerns about shortages next winter. On June 20, the contract fell to $2.185 per mmBtu, its lowest settlement since May 27, 2016.
Analysts said utilities likely added 67 billion cubic feet (bcf) of gas to inventories during the week ended July 5. That compares with an increase of 55 bcf during the same week last year and a five-year (2014-18) average build of 71 bcf for the period.
If correct, that would be the first week in 17 that storage increases were not bigger or decreases were smaller than the five-year average, the most since November 2014, when utilities added more gas or removed less gas than usual for a record 30 consecutive weeks, according to federal energy data going back to 2010.
The amount of gas in storage has remained below the five-year average since September 2017. It peaked at 33pc under the five-year average in March 2019.
Analysts, however, forecast inventories will reach a near-normal 3.7 tcf by the end of the summer injection season on Oct 31.
Output in the Lower 48 US states rose to an all-time high of 90.9 billion cubic feet per day (bcfd) on Thursday, according to data provider Refinitiv.
Additional LNG exports will come from new units at several LNG export terminals, including Cheniere Energy Inc's Corpus Christi, Sempra Energy's Cameron in Louisiana, Freeport LNG's Freeport in Texas and Kinder Morgan Inc's Elba in Georgia.
Analysts said those new units will add to the current global LNG glut.
Traders said they would not be surprised to see LNG buyers reject some US cargoes after gas prices in Europe and Asia fell to multiyear lows over the past few weeks. Global gas prices, however, recovered this week as a heat wave blanketed much of Europe, boosting power demand needed to meet higher air conditioning use.