Natural gas futures pull back from 5-week high in early trade

Investing.com - Natural gas futures were lower for the first time in three sessions during U.S. morning trade on Wednesday, as investors cashed out of the market to lock in gains from a rally that took prices to an five-week high earlier in the day.  

Market players continued to focus on updated weather forecasts to gauge the strength of early-Autumn cooling demand as well as Thursday’s closely watched U.S. government report on natural gas supplies.

On the New York Mercantile Exchange, natural gas futures for delivery in October traded at USD2.961 per million British thermal units during U.S. morning trade, slumping 1.05%.       

It earlier rose by as much as 1.4% to trade at a session high of USD3.036 per million British thermal units, the strongest level since August 9.

Natural gas prices rallied nearly 12% in two sessions leading up to Wednesday, as a bullish outlook for Thursday’s storage data prompted traders to return to the market to cover bets on falling prices, a move known as short covering.

Early injection estimates for this week’s storage data range from an increase of 22 billion cubic feet to 55 billion cubic feet, which is significantly lower than last year's build of 80 billion cubic feet.

The five-year average change for the week is an increase of 72 billion cubic feet.

Some technical buying also contributed to gains, after futures moved in to oversold territory.

However, the sharp jump in prices prompted some investors to sell their position and lock in gains amid concerns that prices cannot sustain a rally over the key USD3.00-level, at which gas loses much of its appeal over coal for power generation.

Meanwhile, the U.S. National Weather Service’s six- to 10-day outlook issued on Tuesday called for below-normal temperatures for most of the mid-Continent and above-normal readings along both coasts.

Natural gas demand typically rises in the summer as air-conditioning use boosts utility demand, then sinks in the fall as demand weakens ahead of the peak winter heating season.

Despite the strong two-day gain, natural gas futures were likely to come under pressure in the near-term amid ongoing concerns over bloated U.S. inventory levels.

Total U.S. gas supplies stood at 3.402 trillion cubic feet as of last week, 13.1% above last year’s level and 10.7% above the five-year average level for the week.

Inventory did not top the 3.4-trillion cubic feet level in 2011 until October 5, with stocks peaking at a record 3.852 trillion cubic feet in November of last year.

Market analysts have warned that without strong demand through the rest of the summer cooling season, 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 150 billion cubic feet in the 12 weeks left before winter withdrawals begin to avoid breaching the government's 4.1 trillion cubic feet estimate of total capacity.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in October rose 0.25% to trade at USD97.41 a barrel, while heating oil for October delivery added 0.45% to trade at USD3.200 per gallon.