Fueled by continued hotter trends in the latest forecast and supply concerns, natural gas futures extended their recent gains in early trading Wednesday. The August Nymex contract was up 4.7 cents to $3.923/MMBtu at around 8:50 a.m. ET.
After settling sharply higher in Tuesday’s session, futures continued to climb overnight.
Analysts at EBW Analytics Group attributed the recent “surge” in natural gas prices primarily to higher demand expectations for the second and third upcoming storage weeks and to “soaring” prices in the physical market.
“Henry Hub gained 8.5 cents yesterday, averaging $3.83, even though day-ahead demand was much lower than next week’s expected peak demand,” the EBW analysts said.
Prices could pull back in the event of a disappointing print from Thursday’s Energy Information Administration storage report, or if forecasts show declining cooling degree days during the July 30-Aug. 5 time frame, according to the firm.
“But the upside price risk remains high,” the EBW analysts said. “Demand is likely to peak just as August reaches final settlement. With opportunities for coal displacement largely exhausted, there is no clear stopping point for how high prices might need to rise to adequately refill storage before the injection season ends.”
The latest forecast data as of early Wednesday continued to trend hotter, according to Bespoke Weather Services. The firm added gas-weighted degree days to its updated 15-day projections.
“All of the changes lie in the forecast for next week, as we continue to see models shift hotter in locations from the lower Midwest into the South, especially Texas,” Bespoke said.
High temperatures could reach into the triple digits in cities including Dallas, while the “strongest heat” relative to normal is expected in the north-central part of the country, “where 90s will be widespread from Minneapolis to Des Moines, and even over to Chicago at times,” the firm added. “Some 90s will be seen over in the Mid-Atlantic as well late-month, though the Northeast remains largely void of any notable heat.”
Natural gas is on a seemingly “unstoppable” rally, and “touching $4.00 looks like a given,” according to Bespoke.
“The market continues to digest the reality that, at least right now, there is simply not enough production to get us to a comfortable storage level heading into winter, as, unlike in years past, there has been little material loosening in supply/demand balances despite the strong surge higher in prices,” Bespoke said.
From a technical standpoint, after prices broke out to the upside the question now is how high can natural gas go, according to ICAP Technical Analysis.
If European prices “do not follow Henry Hub’s lead trouble could be in the works sooner than the bulls would like,” ICAP analyst Brian LaRose said in a note to clients. “So focusing on the $4.010-4.084 neighborhood to start. If this dense cluster of resistance candidates does not slow the ascent a rise to $4.181, $4.386, even $4.818 would be on the table.”
September crude oil futures were up $1.16 to $68.36/bbl at around 8:50 a.m. ET.
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