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June natural gas extends gains as worries of supply-building rise with heat

Editor's Note: Please be advised that S&P Global Market Intelligence will no longer publish daily articles on price trends in the U.S. natural gas, electricity and emissions markets beginning June 1, 2018. Pricing data for these energy markets will continue to be available on the Market Intelligence platform.

June natural gas traded higher Monday, May 14, amid the anticipation of rising cooling demand as temperatures across the country heat up. The contract took a brief turn to the downside, slipping to a $2.798/MMBtu intraday low, but reversed to a $2.847/MMBtu high and settled 3.6 cents higher on the day at $2.842/MMBtu.

"Nat Gas trading has remained choppy with a high level of uncertainty as many market participants are still unclear as to what the upcoming cooling season is likely to be as well as how successful the industry will be in replenishing inventories to comfortable pre-winter levels," Energy Management Institute principal Dominick Chirichella said in a May 14 note.

AccuWeather, in its outlook for April through June, said warmer-than-normal weather is projected for a large part of the U.S.

After a mixed April, May looks to be delivering the heat as the U.S. Energy Information Administration noted natural gas consumption for power generation up 14% week on week in the week to May 9, with the largest increase in natural gas use coming from demand for electric power generation in the Southeast.

The latest revisions to weather maps by the National Weather Service show above-average temperatures across the majority of the eastern and western U.S. in the six- to 10-day period overtaking nearly the entire country in the eight- to 14-day outlook.

Below-average temperatures are forecast to be confined to an area of southern California and Arizona in the West and to Nebraska and small portions of its surrounding states in the center of the country in the short term. Normal temperatures that are expected across portions of the central U.S. and Southwest in the near term are expected to shrink to only small areas of the Northeast and north-central U.S. in the eight- to 14-day period.

Weather supports outlooks for a continued boost to power-sector consumption and a slower rate of storage building, even amid the destruction of heating demand reflected in the 37% combined decline in residential and commercial-sector consumption because of warmer weather, the EIA said.

Natural gas inventories are climbing after a three-week delay to the injection season. Following a net 62-Bcf injection in the week to April 27, which marked the first build of the season, the natural gas supply was up a net 89 Bcf in the week to May 4 to a total at 1,432 Bcf.

Still, inventories stand 863 Bcf below the year-ago level and 520-Bcf below the five-year average storage level of 1,952 Bcf, with the deficits and the early arrival of unseasonably warm weather keeping upside support in the market.

The rising rig count offers some downside pressure as it suggests that natural gas production will remain robust. The combined oil and natural gas rig count in the U.S. was up 13 in the week to May 11 to 1,045, according to the latest North American Rotary Rig Count. The total count sits 160 rigs above the corresponding week a year earlier.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power, natural gas index prices, as well as forwards and futures, visit our Commodities pages.