Natural gas futures rally 4% despite weather, inventories

Investing.com - Natural gas prices were up sharply on Tuesday, as forecasts for chilly nears-term weather in major U.S. gas consuming regions prompted investors to cover short positions, despite ongoing concerns over elevated U.S. inventory levels.

On the New York Mercantile Exchange, natural gas futures for March delivery traded at USD2.535 per million British thermal units during U.S. morning trade, surging 4.3%.   

It earlier rose by as much as 4.65% to trade at USD2.553 per million British thermal units, the highest since February 9.

Natural gas traders continued to monitor weather forecasts in key gas-consuming regions in the U.S. to gauge demand for the heating fuel.

Weather forecasters are predicting colder-than-normal temperatures across much of the U.S. Midwest, West and Rocky Mountain-region states in the next three-to-five-days.

The U.S. National Weather Service’s six-to-ten-day weather outlook issued on Monday called for below-normal readings for much of the western half of the U.S.

The short-term weather outlook prompted investors to take profits generated from bets on falling prices, a move known as covering a short position.

Despite the strong gain in prices, market participants said the rally lacked conviction as milder temperatures were expected to return across most of the U.S. during the final two weeks of February.

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.

Winter so far in the U.S. has been the second mildest since 1950. It is running about 13% warmer than the 30-year normal, according to recent data from MDA EarthSat.    

Gas prices fell to USD2.319 per million British thermal units on January 20, the lowest since February 2002, before rebounding after a production-cut announcement by Chesapeake Energy sparked a massive short-covering rally.

However, market participants are reluctant to bet that prices will rise further amid a lack of production cut announcements from other major U.S. natural gas producers.

Traders said planned cuts so far were not enough to tighten a market seen oversupplied by as much as 3 billion cubic feet per day, or more than 4%.

Most analysts now expect gas inventories to end the winter at approximately 2.1 trillion cubic feet, 35% above average and near the all-time high for end-season storage of 2.148 trillion cubic feet set in 1983.

Official data released last week showed that total U.S. natural gas inventories fell by a weaker-than-expected 78 billion cubic feet to 2.888 trillion cubic feet, 32% above the five-year average for this time of year.

Early withdrawal estimates for next week’s storage data range from a decline of 100 billion cubic feet to 134 billion cubic feet, well below last year's drop of 230 billion cubic feet and the five-year average decline for the week of 178 billion.

Inventory withdrawals this winter are running nearly 480 billion cubic feet below average, or about 33%, due to the lack of heating demand this winter.

Elsewhere on the NYMEX, light sweet crude oil futures for delivery in April climbed 0.62% to trade at USD101.92 a barrel, while heating oil for March delivery added 0.25% to trade at USD3.167 per gallon.