Dow Jones - Natural Gas at Nearly 3-Week High On More Demand, Less Supply

DJ Natural Gas at Nearly Three-Week High; Expecting More Demand, Less Supply


  By Timothy Puko


  Natural gas prices rose to nearly a three-week high Wednesday as expectations for rising demand and lower supply
growth pushed gas to a three-session rally.

  Prices for the front-month July contract rose 4.5 cents, or 1.6%, to $2.891 a million British thermal units on the
New York Mercantile Exchange. Prices are now up nearly 12% since they settled at a six-week low on Friday.

  Prices have been rising all week as weather forecasts have grown incrementally warmer. The Mid-Atlantic region is
likely to see its hottest weather of the year so far on Thursday and Friday with high humidity and temperatures
cresting 90 degrees Fahrenheit, said Commodity Weather Group LLC in Bethesda, Md.

  Forecasts haven't changed much on Wednesday, but they have held firm on the hot predictions. That is enough to keep a
run going for now in this kind of market, analysts said. The forecasts come a few days after the largest buildup of
bearish traders in gas since the financial crisis. A market that crowded can be prone to reversals.

  The warm forecasts could scare many of those bears into quickly unwinding the bets that would profit if the market
falls, analysts and brokers said. Such trades are closed out by buying futures to cover the positions, which may be
feeding the rally if many traders are doing that all at once, analysts said.

  Warm weather and increased use of air conditioning usually leads power plants to burn more natural gas. New, lower
supply estimates are also adding fuel to the rally.

  "Warm expectations are seeing an exaggerated price response given this week's bullish supply-side adjustments," Jim
Ritterbusch, president of energy-advisory firm Ritterbusch & Associates, said in a note.

  The U.S. Energy Information Administration on Tuesday trimmed its gas production forecast for every quarter through
2016, adding to evidence that output may be reaching a plateau after a long period of rampant growth. EIA still expects
output to return to setting monthly records in July, but monthly growth rates will be a fraction of a percentage point,
compared with growth which often exceeded 1% a month in 2014.

  Energy investment bank Tudor, Pickering, Holt & Co. said in a note it expects supplies to start declining in the
second half of the year. It expects that to push prices higher in the second half of this year and into 2016 as supply
declines hit at the same time that power-sector demand rises.

  But near-record production now should still be enough to bring the market back down soon, Aaron Calder, senior market
analyst at energy-consulting firm Gelber & Associates in Houston, said in a note. EIA keeps reporting large weekly
surpluses and prices are likely to stay low until that stops, which is unlikely to happen soon, he added.

  Last week's addition to storage was likely about a quarter larger than the five-year average, according to 16
forecasters surveyed Wednesday by The Wall Street Journal. Their average forecast is for a 111 billion-cubic-feet
addition to stockpiles for the week ended June 5. EIA releases its weekly storage updates on Thursday at 10:30 a.m.

  "This rally is a brief distraction to oversupplied conditions,"  Mr. Calder said.


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  (END) Dow Jones Newswires

  June 10, 2015 15:08 ET (19:08 GMT)

  Copyright (c) 2015 Dow Jones & Company, Inc.

061015 19:08 -- GMT
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