Natural gas futures jumped in New York after a government report showed a smaller-than-forecast U.S. stockpile increase.
Stockpiles gained 73 billion cubic feet in the week ended April 16 to 1.829 trillion cubic feet, the Energy Department report today showed. Analysts forecast an increase of 78 billion. Gas futures have dropped 26 percent this year as stockpiles advanced at a faster rate than average.
“There’s a question in people’s mind about a bounce and there’s a fear of missing the bargain,” said Brad Florer, a trader at Kottke Associates Inc., a commodity futures broker in Louisville, Kentucky. “Physical users who’ve been waiting to make a purchase may be stepping up to buy some gas.”
Natural gas for May delivery rose 17.3 cents, or 4.4 percent, to settle at $4.128 per million British thermal units on the New York Mercantile Exchange. The contract has risen 17 percent from a year ago.
Inventories last week were 19 percent above the five-year average, up from 16 percent in the previous Energy Department report. The five-year average supply increase for the week is 33 billion cubic feet.
Gas demand for power generation rose last week, reducing the amount available for storage, as maintenance at coal-fired electricity plants reached a seasonal peak, Teri Viswanath, director of commodities research with Credit Suisse Securities USA in Houston, said in a telephone interview.
A year-over-year surplus in supplies is also widening, though that might change next month, she said. The surplus to a year earlier expanded to 5.5 percent from 3.8 percent, Energy Department data showed.
“In May, we saw some heat last year, so if we see heavier cooling demand next month then we’ll pretty quickly whittle the surplus away,” Viswanath said.
Higher temperatures can increase demand for the power-plant fuel as air conditioners are switched on, boosting electricity consumption.
Viswanath and Florer both said any rally will be limited as excess supplies weigh on the market.
Inventories typically increase from April to November as utilities and other large consumers buy gas for use during the cold-weather months, when demand exceeds production and imports.
“We’re building a long-term base around $4,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois-based consultant. “Industrial off-take is in better shape than a lot of people think and you’re going to see fairly strong electricity-generation demand” for gas.
The combination of rising consumption from industrial users as the economy recovers and power generators favoring gas that is cheaper than coal helped to lift prices above $4 per million Btu, Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston, said in a telephone interview.
“There’s enough of a demand tension, adding an incremental 1 billion cubic feet a day of fuel switching, that you likely have a firm floor at $4,” he said. “It’s going to be tough to keep gas below $4 with that dynamic in play.”
Horwitz estimated gas demand from power generators jumped about 1 billion cubic feet a day last week from the previous week. Industrial consumption is about 1 billion cubic feet a day higher now than the same time a year ago, he said.
Together, power generation and factories, chemical plants and steel mills account for about 60 percent of U.S. gas consumption.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, fell 0.74 cent, or 0.2 percent, to $3.9498 per million Btu, according to data compiled by Bloomberg.
Gas futures volume in electronic trading on the Nymex was 271,565 contracts as of 2:44 p.m., compared with a three-month daily average of 234,000. Volume totaled 195,935 yesterday. Open interest was 870,898 contracts, compared with the three-month average of 822,000. The exchange has a one-business-day delay in reporting open interest and full volume data.
To contact the reporter on this story: Reg Curren in Calgary at email@example.com