US natural gas futures on Thursday gained over 3 percent to a five-week high on forecasts calling for a cold snap over parts of the country over the weekend and into early next week. For the rest of March, however, the weather models expect the return of spring-like temperatures. After rising for eight of the past nine trading days in a technical, short-covering rally, front-month gas futures on the New York Mercantile Exchange closed up 6.8 cents, or 3.6 percent, at $1.936 per million British thermal units, pushing the contract into overbought territory for the first time since early January.
Traders said the technical rally started on March 4, when prices fell to an intra-day low of $1.611, the lowest level since August 1998. "Current fundamentals do not support the recent price gains as total gas in inventory is going to end the heating season (March 31) at a record high level leaving significantly less capacity available for the upcoming injection season," Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note.
The US Energy Information Administration said utilities pulled just 1 billion cubic feet of gas out of storage during the week ended March 11. That could be the last draw of the winter season and was within the range of analyst expectations for a 2 bcf draw. It compared with draws of 88 bcf a year earlier and a five-year average draw of 81 bcf. Analysts said the small draw last week will leave stockpiles at the end of March at an all-time high of around 2.5 trillion cubic feet, topping the end-of-withdrawal-season high of 2.369 tcf set in 2012.
With so much gas in inventory going into the April-October summer injection season, analysts said, prices would have to remain low for the rest of 2016 to prevent supplies from hitting storage limits at the end of October. Gas prices at the Henry Hub benchmark in Louisiana averaged $2.61 in 2015, the lowest since 1999. So far this year, spot prices have averaged $2, while futures were fetching $2.23 for the balance of 2016 and $2.73 for calendar 2017.
Those low prices are expected to pressure producers to reduce output and encourage power generators to keep burning record amounts of gas instead of coal. A hot summer would also help sop up some surplus gas, with temperatures expected to be 21 percent warmer than normal in July and 16 percent warmer in August, according to Thomson Reuters Analytics.