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NYMEX October natural gas futures spike as demand rises and production falls

Houston — NYMEX October natural gas futures spiked in morning trading Tuesday, on a near-term rise in demand and a drop in production.

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As of 11:00 am EDT (1500 GMT), the front-month contract was trading at $2.881/MMBtu, up 6.7 cents, after moving between $2.811/MMBtu and $2.886/MMBtu so far in the session.

"Prices are getting near-term support due to late summer cooling demand," said Gene McGillian, a senior analyst at Tradition Energy.

The upward mobility in prices for two straight days comes as total US demand is set to climb to 80.9 Bcf Tuesday, according to data from S&P Global Platts, after averaging 77.4 Bcf/d in the last seven days.

However, demand might not be able to hold the current highs as temperatures move back to seasonal norms. Over the next seven days, Platts Analytics projects demand to drop and average 77 Bcf/d.

The storage deficit combined with production decline also drove a part of Tuesday's gains so far in morning trading.

Current national gas inventories sit at 2.636 Tcf, 18.4% below the five-year average of 3.232 Tcf, according to data from the US Energy Information Administration. However, the storage deficit did very little to drive prices up from the beginning of summer to date, on expectations that historically high production levels will be able to offset winter demand.

"Prices have moved between the $2.75/MMBtu and $3.05/MMBtu range so far," said McGillian.

"The market has found a sweet spot," he said, with demand for cheap gas for power burn and strong production holding prices on either side of the range.

On the supply side, US dry gas production is estimated to drop 1.6 Bcf/d and stand at 82.4 Tuesday, after hitting a new record high of 84 Bcf the day prior, according to data from Platts Analytics. The most significant drop is likely to come from the Northeast, a day-on-day drop of 500 MMcf, followed by Texas, Southeast and Midcontinent production regions.

--Veda Chowdhury, veda.chowdhury@spglobal.com

--Edited by Derek Sands, derek.sands@spglobal.com