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Natural gas futures were higher during U.S. morning trade on Tuesday, hitting a four-day high as forecasts for extreme heat across key parts of the U.S. in the next two weeks boosted near-term demand expectations for the fuel.
On the New York Mercantile Exchange, natural gas futures for delivery in August traded at USD2.865 per million British thermal units during U.S. morning trade, jumping 1.45%.
It earlier rose by as much as 1.75% to trade at USD2.873 per million British thermal units, the highest since June 27.
A bout of hot weather across much of the country over the last several weeks has helped boost natural gas prices. The August contract rallied to USD2.971 on June 27, the highest since January 10.
But market participants have warned that prices were expected to face strong resistance as they approach the USD3.00-level, where gas loses its appeal over coal for power generation.
Prices in recent days have been buoyed by forecasts showing extremely warmer-than-normal weather across most parts of the U.S. in the coming two weeks.
Forecaster MDA EarthSat predicted temperatures “near or above 100 Fahrenheit” in St. Louis in the next six to 10 days, as above-normal temperatures sweep across much of the Midwest and Northeast.
Warmer-than-normal temperatures increase the need for gas-fired electricity to power air conditioning, boosting demand for natural gas. Natural gas accounts for about a quarter of U.S. electricity generation.
Indications that North American gas producers were cutting back on production in response to lower prices also provided support.
Industry group Baker Hughes said last week that the number of active rigs drilling for natural gas in the U.S. fell by 7 to 534, the lowest since September 1999.
The gas rig count is 43% below last year’s level, fuelling hopes that major North American natural gas producers were beginning to curb output in response to declining prices.
However, lingering concerns over rising U.S. inventories were likely to continue to weigh on the market.
Total U.S. gas supplies stood at 3.063 trillion cubic feet last week, 27% above last year’s level and 25% above the five-year average level for that week.
U.S. gas inventories did not hit the milestone 3 trillion cubic feet level until August 31 of last year.
Market analysts have warned that without strong demand through the rest of the summer, gas inventories will reach the limits of available capacity later this year.
The storage surplus to last year will have to be cut by at least another 405 billion cubic feet in the 20 weeks left before winter withdrawals begin to avoid breaching the government’s 4.1 trillion cubic feet estimate of total capacity.
Early injection estimates for this week’s storage report range from 39 billion cubic feet to 55 billion cubic feet, compared to last year’s build of 90 billion cubic feet. The five-year average change for the week is an increase of 79 billion cubic feet.
Natural gas prices are up nearly 45% since touching a decade-low of USD1.902 on April 19.
Speculation that utility providers in the U.S. were switching from pricier coal to cheaper natural gas boosted the commodity, but market players noted that sustained prices back above USD2.50 and toward the USD3.00-level likely would inspire some switching back to coal.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in August surged 3.75% to trade at USD86.89 a barrel, while heating oil for August delivery jumped 2.3% to trade at USD2.736 per gallon.