Natural gas climbs to 2-week high as short-cover rally continues

Investing.com - Natural gas prices were up sharply on Wednesday, climbing to a two-week high as a short-covering rally sparked by Chesapeake Energy’s announcement that it planned on cutting production levels continued for a third day.

On the New York Mercantile Exchange, natural gas futures for March delivery traded at USD2.689 per million British thermal units during U.S. morning trade, surging 3.38%.   

It earlier rose by as much as 4.25% to trade at USD2.704 per million British thermal units, the highest since January 13.

Natural gas prices have rallied nearly 16% in the past three sessions after Chesapeake Energy, the second largest U.S. natural gas producer, announced on Monday that it planned to reduce production levels in response to prices falling below "economically unattractive levels".

Chesapeake, which produces approximately 9% of U.S. natural gas said it will “immediately curtail” 0.5 billion cubic feet a day of gas production, or nearly 8% of its total output.

Chesapeake’s announcement prompted investors to take profits generated from bets on falling prices, a move known as covering a short position.

Despite the strong three-day gain, natural gas prices are still down nearly 26% since the beginning of December, amid concerns over elevated inventory levels and mild winter weather in the U.S.  

Last week, gas prices fell as low as USD2.322 per million British thermal units, the lowest since February 2002.
 
This is typically the coldest time in winter, but temperatures in the U.S. have yet to reach levels cold enough to boost demand for the heating fuel, keeping prices depressed at unseasonably low levels.

The U.S. National Oceanic and Atmospheric Administration said Tuesday that it expected above-normal temperatures to linger throughout most the U.S. through early February.

Meanwhile, natural gas traders were looking forward to Thursday’s closely-watched U.S. Energy Information Administration’s report on U.S. natural gas stockpiles for the week ended January 20.

The report was expected to show that U.S. natural gas inventories fell by 91 billion cubic feet.

Inventories fell by 184 billion cubic feet in the same week a year earlier, while the five-year average change for the week is a decline of 173 billion cubic feet, according to U.S. Energy Department data.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in March fell 1.15% to trade at USD97.78 a barrel, while heating oil for February delivery shed 0.45% to trade at USD3.010 per gallon.