June 18th, 2012

Natural gas futures prices rose Monday, bouncing back above $2.50 per million British thermal units as investors keep watch for further signs of rising gas demand after last week’s price surge.

Natural gas for July delivery rose 4.7 cents, or 1.9%, to recently trade at $2.514/MMBtu on the New York Mercantile Exchange.

Gas futures appear ready to hold in to a tight range near $2.50 as traders weigh volatile near-term weather forecasts and try to gauge whether the sharp rally last week will hold until the next set of inventory data this week.

“It’s looking like we might flatline until Thursday,” said Bob Yawger, an energy analyst at Mizuho. “We had a big move, so the market is really looking for confirmation that there is demand from the utilities.”

Last Thursday weekly data showed a smaller-than-expected increase in U.S. natural-gas inventories, prompting a round of buying as the massive supply glut continued to shrink.

Total U.S. stockpiles stand at 2.944 trillion cubic feet, a record high for this time of year and 29% above the five-year average. But the size of the gas glut compared to the five-year average is 666 bcf, down from 927 bcf in March.

Prices soared by roughly 30 cents, or 14%, in Thursday’s session after the data were released, the largest one-day percentage gain since 2009.

With natural-gas futures in the mid-$2 range, many analysts say utilities will continue to switch to gas from more expensive coal, raising demand. The U.S. Energy Information Administration expects demand from electricity-producing utilities will rise 20% this year.

Still, the massive supply overhang isn’t likely to fall unless warm temperatures this summer result in consumers and businesses cranking up their air conditioners.

The Midwest and Northeast are expected to see their first period of summer heat this week, according to MDA EarthSat. The forecaster expects temperatures could reach above 95 degrees in Boston Wednesday, though the heat “will quickly fade over the Northeast as a cool trough settles into the region” in the next week.

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $2.45/MMBtu, according to IntercontinentalExchange, compared with Friday’s average of $2.444/MMBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $2.60/MMBtu, up from $2.548/MMBtu.

- Jerry A. DiColo at Dow Jones.