U.S. natural gas futures rose 4.5% on Wednesday, recovering from a three-year low touched the previous day as investors covered short positions after prices held above technical support and as traders rolled over positions.
On its second day as the front month, gas futures for September delivery on the New York Mercantile Exchange rose 9.6 cents to settle at $2.233 per million British thermal units. In the previous session the contract slipped to $2.107, its lowest since May 2016.
Technical buying boosted prices a day after they bounced off support around $2.10, Phil Flynn, senior analyst at Price Futures Group in Chicago said. Flynn said investors rolling over positions from August added support.
“Lot of times, when you change from front month to different month, that does create some short time opportunities to cover shorts and pick a bottom,” Flynn said.
Analysts said the front-month has traded around multi-year lows since late May as near-record production and a mild spring allowed utilities to inject huge amounts of gas into storage, removing concern about shortages next winter.
The gas storage inventory level has remained below the five-year average since September 2017. It fell as low as 33% below that average in March 2019. With production near record highs, analysts expect stockpiles will reach a near-normal 3.7 trillion cubic feet (tcf) by the end of injection season on Oct. 31.
Gas production in the Lower 48 U.S. states slipped to 89.7 bcfd on Tuesday a day after hitting a three-week high of 90.7 bcfd on Monday, according to data from Refinitiv. Production remains near the July 5 all-time daily high of 91.1 bcfd, and an average of 83.1 bcfd during this week last year.
Refinitiv projected demand in the Lower 48 would rise from 90.8 bcfd this week to 91.2 bcfd next week as power generators burn more fuel to meet higher air conditioning use and as more gas flows to LNG export terminals.
Gas prices for Wednesday at the Henry Hub held at $2.22 per mmBtu, their lowest since November 2016 as widespread moderate weather hit demand for cooling.
Analysts said utilities likely added a bigger-than-usual 57 billion cubic feet (bcf) of gas into storage during the cooler-than-normal week ended July 26. That compares with increases of 31 bcf during the same week last year and a five-year (2014-18) average build of 37 bcf for the period.
If correct, that increase would boost stockpiles to 2.626 tcf, 4.8% below the five-year average of 2.757 tcf for this time of year.