Natural gas prices rebounding from a 16-year low may rally further as colder weather stokes demand, forcing speculators to cut bearish bets even more.

Five of 11 analysts and traders surveyed by Bloomberg said they’re bullish on futures prices, while four say prices will stay steady and another two are bearish. Last week, seven of 12 respondents were bullish.

Gas futures surged 19 percent after plunging Dec. 18 to $1.684, the lowest intraday price since March 19, 1999, as forecasts showed that mild weather sweeping the East this month will give way to seasonally lower temperatures in January. A government report Thursday showed a withdrawal of gas from storage caverns last week was higher than analysts had anticipated.

“Fundamentally, things do look better with this report, and combined with the weather forecast we are getting a bullish picture starting to form,” said Aaron Calder, senior market analyst at Gelber & Associates in Houston. “We think that with a bit of colder-than-normal temperatures, the market could get back to $2.50. Even with normal temperatures, the underlying fundamental bullishness should push it back to $2.25.”

Gas for January delivery gained 24.8 cents, or 14 percent, this week to $2.015 per million Btu at 12:56 p.m. on Thursday on the New York Mercantile Exchange, heading for the biggest weekly gain since February 2014. The market will be closed on Friday in observance of Christmas.

Short-Covering

The rally likely is being fueled by bearish traders covering short positions heading into a long weekend, and they may do the same next week going into the new year, said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York.

Money managers cut their net-short position in four gas contracts by 43 percent as of early last week from an all-time high reached on Nov. 6, U.S. Commodity Futures Trading Commission data show.

Gas stockpiles fell 32 billion cubic feet to 3.814 trillion in the week ended Dec. 18, below the five-year average withdrawal of 121 billion for the same period, U.S. Energy Information Administration data showed. Analyst forecasts signaled a decline of 27 billion, based on the median estimate. A supply surplus to the historic norm jumped to 12.1 percent, the most since March 2013.

Even though the U.S. is grappling with a supply glut, the latest EIA storage report shows consumers are taking advantage of low prices to burn more fuel.  Power generators are using a record amount of gas for this time of the year, according to PointLogic Energy data.

Source: PointLogic Energy

“This 32 bcf withdrawal just shows that rock-bottom cash prices really had a profound effect on natural-gas demand,” said Calder, who was anticipating a withdrawal of 19 billion based on weather models. “So we think that with a little bit of colder-than-normal temperatures, or even normal temperatures, that this market could take off.”

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