-- Prices regain fraction of Monday's 8.1-cents loss
-- Market awaits storage data Thursday for guidance
-- Summer weather will be major factor
By David Bird
NEW YORK--Natural gas futures prices ended modestly higher Tuesday after a steep sell-off to six-week lows Monday.
Traders said the market is pinned between worries over current record high seasonal inventories and hopes for hot summer temperatures that will drive up gas demand from utilities meeting rising customer demand for power to run air conditioners.
The National Oceanic and Atmospheric Administration forecast for the second half of June calls for above-normal temperatures concentrated in the Ohio and New England regions, but temperatures in the center of the nation are expected to be normal, while below-normal temperatures are expected in the West, limiting potential for significant jump in demand, traders said.
The Energy Information Administration said in its monthly outlook Tuesday that a flattening out of production levels should lead to benchmark gas prices at the Henry Hub terminal in Louisiana of $2.55 per million British thermal units this year, about 4.1% above the month-earlier forecast.
Traders said that suggests little room for prices to climb from current levels.
July-delivery natural gas futures on the New York Mercantile Exchange settled 1.4 cents higher, at $2.232/mmBtu. Prices fell 3.5% Monday to the lowest level since April 27.
The market will be turning to the EIA's weekly U.S. gas storage data due out at 10:30 a.m. Thursday for near-term guidance. Last week, the EIA said gas stockpiles in the week ended June 1 rose by 62 billion cubic feet to 2.877 trillion cubic feet, 33% higher than the five-year average for the week and a record high level for this time of year.
Kyle Cooper, managing partner of IAF Energy Advisors, noted that gas storage levels in early June already are at highs not hit until August last year. "We are working it off gradually," Mr. Cooper said of the slowly shrinking overhang. "But it will take the whole summer to work it off."
The EIA projections issued Tuesday show gas storage will reach 4.015 trillion cubic feet in October, ahead of the winter demand season, indicating that inventories won't reach storage capacity limits, as had earlier been feared. Utilities switching from coal to relative cheap gas will boost demand from power generators by 20% this year, the EIA expects, offsetting most of the decline in fuel usage from an unusually warm winter.
Pax Saunders, analyst at Gelber & Associates, noted that weather-related demand projections from NOAA and the EIA show a huge "summer hurdle for the bulls.
"One of the biggest factors many folks keep overlooking," Mr. Saunders said in a research note, is that "July and August in 2011 were screaming hot."
Forecasts for cooling-degree days, or a measure of gas demand related to temperatures last year, were 23.3% above the 30-year average in July and August. This year, the forecasts from EIA and NOAA show a rise in the two key summer months of just 1.5% compared with the 30-year average of so-called cooling degree days.
Write to David Bird at firstname.lastname@example.org
(END) Dow Jones Newswires
June 12, 2012 16:04 ET (20:04 GMT)
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