Bank of America Raises Natural Gas Forecast on Glut Elimination

Bank of America Corp. raised its forecast for U.S. natural gas prices in 2013 after the biggest drawdown from storage in a decade left inventories below the five-year average.

Natural gas will trade at an average $3.90 per million British thermal units, Sabine Schels, an analyst at the bank in London, said in an e-mailed report dated yesterday, raising her prediction from $3.75. Prices will drop to $3.50 this summer, she said. The bank maintained its 2014 forecast at $4.20. Month-ahead gas rose 25 percent this year to trade at $4.19 per million Btu at 6:28 a.m. on the New York Mercantile Exchange.

The use of gas in power generation in place of coal is still needed to support prices as inventories are at the fourth-highest level on record for the time of year, Schels said.

“A key risk stems from reversing coal-to-gas switching in power generation too sharply as some coal substitution is still required to balance the market,” she said. “Coal substitution remains an important price driver this summer.”

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