Natural gas futures are surging nearly 3 percent to break through $3, a level not seen since May 21, 2015, in anticipation of a hot summer and strong demand. But prices have come off since early May, trending under $3 for most of the summer, as demand was within seasonal expectations.
Today's price movement wasn't a surprise to technical traders who have been watching prices test key resistance levels.
"The shorts started covering as nat gas popped through a recent high and technical resistance level of 2.98," said Jeff Kilburg, CEO of KKM Financial. "We haven't seen that breached since July 1."
But the story isn't just technical. Fundamental supply and demand dynamics are being analyzed as this is the transition period where air conditioning is no longer necessary to cool homes, and heat is not required yet either.
"From a fundamental perspective, the expectation is that injections over the course of the next few weeks will be weaker than in previous years. The price has been low, so it makes sense that producers have scaled back production," said Anthony Grisanti, president of GRZ Energy.
Total stocks continue to trend well over 3 trillion cubic feet, according to Platts, and remain above last year and the five-year average. However, that provides little comfort for traders who recall cold winters draining supplies as in 2014, when natural gas spiked over $6.
"It all depends on how cold it is this winter. We could easily draw down a trillion cubic feet quickly if temperatures are severe, so that can raise concerns," Grisanti said.