Natural gas futures rebounded from the lowest level in almost six weeks on forecasts for hotter weather along the U.S. Eastern seaboard.
Above-average temperatures may stretch along the Gulf Coast and from Florida to Maine Aug. 26 to Sept. 1, according to the U.S. Climate Prediction Center. Gas accounts for 31 percent of power generation, government data show.
“We’re getting some guidance that the first week of September may be hot,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said by phone Wednesday. “If the weather doesn’t disappoint there’s a case for” higher prices.
Natural gas for September delivery gained 1.2 cents to settle at $2.716 per million British thermal units on the New York Mercantile Exchange after dropping to $2.704 Tuesday, the lowest close since July 8. Futures are down 6 percent this year.
Prices Tuesday may have hit bottom for the summer storage injection season as gas robs coal of market share and demand expands amid coal plant retirements, Viswanath said.
Coal will be used to generate 36 percent of electricity this year, down from 39 percent a year ago, as generators switch to cheaper gas, according to the U.S. Energy Information Administration.
About 7 percent of U.S. coal-fired capacity will shut this year, according to Bloomberg New Energy Finance. The retirements will increase gas demand by 1 billion cubic feet per day, Viswanath estimated.
“That story is really one that gets under way in the second half of this year,” she said.
Gas stockpiles totaled 2.977 trillion cubic feet on Aug. 7, according to the Energy Information Administration, which is scheduled to report on last week’s supplies Thursday.
U.S. gas inventories probably rose by 59 billion cubic feet in the week ended Aug. 14, based on the median of 13 analyst estimates compiled by Bloomberg. Assessments ranged from gains of 50 billion to 68 billion. The five-year average increase for the period is 54 billion cubic feet.
Stockpiles are likely to end October at 3.867 trillion cubic feet, the second-highest on record for the end of the fall injection season, the EIA forecasts.
Those expectations limit price gains for the power plant fuel, Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone.
“That’s keeping a lid on it,” Cooper said. “We’re in that $2.50 to $2.70 range that we’ve been stuck in since May.”
Prices may become volatile as winter approaches because traders are expecting that the El Nino weather phenomena will yield mild temperatures, Cooper said.
If the winter ends up being cold, gas may approach $3.25 per million Btu, he said.