Dow Jones - Natural Gas Rises As Power-Sector Demand Holds Strong

DJ Natural Gas Rises as Power-Sector Demand Holds Strong

By Timothy Puko

     Natural gas prices rose Thursday, shrugging off bearish stockpile data, as traders focused on chances for strong
demand to ease a historic glut.

     Natural-gas demand has kept rising in recent weeks, confounding some who expected a 40% rally in prices in the
past month would lead power plants to buy other fuels instead. It hasn't, analysts said, and as hotter weather has
increased power demand, gas consumption grew about 1.5% month-to-date to nearly 67 billion cubic feet a day, according
to Platts Analytics, a forecasting and analytics unit of S&P Global Platts.

     Natural gas for July delivery settled up 2.1 cents, or 0.8%, at $2.698 a million British thermal units on the New
York Mercantile Exchange. Front-month prices have gained 37% since the June contract expired at just $1.963/mmBtu on
May 26. The market is now up in four of the last five sessions, raising month-to-date gains to 18%.

     These higher natural-gas prices have convinced more power generators to burn coal, but gas consumption is still on
the rise in the power-sector, said Eric Fell, senior natural gas analyst at Genscape Inc., a data provider. The amount
of both wind and hydropower is declining, causing power generators to burn more of both coal and gas to match high
demand for air conditioning during an exceptionally warm June, he added.

     That has kept fueling a bullish sentiment in the gas market despite high stockpiles and production not far from
record pace, analysts and brokers said. Weather forecasts are calling for a hotter-than-average summer, leading many to
believe this high demand for gas-fired power will continue and soak up a glut of gas in storage.

     "There's still a lot of optimism about the summertime rebalancing under way," said Teri Viswanath, managing
director, natural gas, at PIRA in New York.

     Midday weather updates also helped fuel buying, said Scott Shelton, broker at ICAP PLC. Weather models for 11 to
15 days out grew warmer in the West, pushing high temperatures to about 10-degrees-Fahrenheit-above normal in several
cities between Kansas and California, said Paul Markert, senior meteorologist at MDA Weather Services in Maryland.

     That was enough to help reverse a dip in prices that had put natural gas at its low point for the week. Prices
fell as low as $2.614/mmBtu after the U.S. Energy Information Administration gave its weekly update on stockpiles late
Thursday morning.

     It showed stockpiles grew by 62 billion cubic feet last week, compared with the 59 bcf expected by forecasters
surveyed by The Wall Street Journal. The report is a widely watched measure of supply and demand. A
larger-than-expected addition to storage likely indicates larger supply or smaller demand than expected.

     The inventory data is "marginally bearish. It's definitely not game-changing bearish, not yet," Mr. Shelton said.

     But many also warned recent gains may not hold. Inventories as of June 17 reached 3.1 trillion cubic feet, 25%
above levels from a year ago and 28% above the five-year average for the same week, according to EIA. That puts it on
pace to set a record high going into the winter, said Gene McGillian, an analyst at Tradition Energy.

     "At $2.75, with over 3 (trillion cubic feet) in the ground, it looks like the rally might be overextended," he
said. "We need to see more evidence that reduced drilling and increased demand is making a material difference."

     Write to Timothy Puko at tim.puko@wsj.com


  (END) Dow Jones Newswires

  June 23, 2016 15:19 ET (19:19 GMT)

  Copyright (c) 2016 Dow Jones & Company, Inc.

062316 19:19 -- GMT
------