Natural gas futures rallied to a one-month high just shy of $3 per million BTUs, surging over 10 percent in two days, as traders anticipate the weekly increase in gas in storage will be smaller than previously forecast and new entrants to the market cover short positions.
NYMEX October natural gas futuresjumped over 30 cents from Monday's session low of $2.65 to Tuesday's high of $2.99 as key technical levels were breached around the 200-day moving average, traders said. The $3-mark has been a key resistance level over the past several weeks. The front-month natural gas contract hit $3.12 on Aug. 9.
Traders said potentially bullish fundamental data have contributed to a change in sentiment. Above-normal temperatures across much of the country and losses to production in the Gulf of Mexico due to Hurricane Isaac will likely cause the weekly injection to storage to be well-below average for this time of year, traders and analysts said.
"Gas prices are including a calculation of another week of stingy injections (to storage levels), the result of recent shut-ins," analyst Mike Fitzpatrick wrote in The Kilduff Report. Also, "prices below $3 favor gas over coal."
CitiFutures energy analyst Tim Evans said the storage injection could be as low as 22 billion cubic feet and the overall storage surplus will decline. However, after last week's addition to storage, the data will be more neutral, he says.
Natural gas futures could come under pressure as physical demand hits a seasonal low in coming weeks, Evans wrote in a note to clients. He suggested traders stay on sidelines and wait for a lower entry point, perhaps in the November contract.
Also Tuesday, the U.S. Energy Information Administration slightly raised its estimate for for domestic natural gas production growth in 2012, expecting output this year to be up 4 percent from 2011's record levels.
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