THE WALL ST. JOURNAL

Natural Gas Ends at Nearly Three-Week High

Rally extends to third session


By Timothy Puko / Updated June 10, 2015 3:19 p.m. ET


Natural gas prices rose to nearly a three-week high Wednesday as expectations for rising demand
and lower supply growth pushed gas to a three-session rally.


Prices for the front-month July contract rose 4.5 cents, or 1.6%, to $2.891 a million British
thermal units on the New York Mercantile Exchange. Prices are now up nearly 12% since they
settled at a six-week low on Friday.


Prices have been rising all week as weather forecasts have grown incrementally warmer. The
Mid-Atlantic region is likely to see its hottest weather of the year so far on Thursday and Friday
with high humidity and temperatures cresting 90 degrees Fahrenheit, said Commodity Weather
Group LLC in Bethesda, Md.


Forecasts haven’t changed much on Wednesday, but they have held firm on the hot predictions.
That is enough to keep a run going for now in this kind of market, analysts said. The forecasts
come a few days after the largest buildup of bearish traders in gas since the financial crisis. A
market that crowded can be prone to reversals.


The warm forecasts could scare many of those bears into quickly unwinding the bets that would
profit if the market falls, analysts and brokers said. Such trades are closed out by buying futures
to cover the positions, which may be feeding the rally if many traders are doing that all at once,
analysts said.


Warm weather and increased use of air conditioning usually leads power plants to burn more
natural gas. New, lower supply estimates are also adding fuel to the rally.


“Warm expectations are seeing an exaggerated price response given this week’s bullish supplyside
adjustments,” Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates,
said in a note.


The U.S. Energy Information Administration on Tuesday trimmed its gas production forecast for
every quarter through 2016, adding to evidence that output may be reaching a plateau after a
long period of rampant growth. EIA still expects output to return to setting monthly records in
July, but monthly growth rates will be a fraction of a percentage point, compared with growth
which often exceeded 1% a month in 2014.


Energy investment bank Tudor, Pickering, Holt & Co. said in a note it expects supplies to start
declining in the second half of the year. It expects that to push prices higher in the second half of
this year and into 2016 as supply declines hit at the same time that power-sector demand rises.


But near-record production now should still be enough to bring the market back down soon,
Aaron Calder, senior market analyst at energy-consulting firm Gelber & Associates in Houston,
said in a note. EIA keeps reporting large weekly surpluses and prices are likely to stay low until
that stops, which is unlikely to happen soon, he added.


Last week’s addition to storage was likely about a quarter larger than the five-year average,
according to 16 forecasters surveyed Wednesday by The Wall Street Journal. Their average
forecast is for a 111 billion-cubic-feet addition to stockpiles for the week ended June 5. EIA
releases its weekly storage updates on Thursday at 10:30 a.m.


“This rally is a brief distraction to oversupplied conditions,” Mr. Calder said.


Write to Timothy Puko at tim.puko@wsj.com


FUTURES AND OPTIONS TRADING INVOLVE SIGNIFICANT RISK OF LOSS AND
MAY NOT BE SUITABLE FOR EVERYONE. OPTIONS, CASH AND FUTURES
MARKETS ARE SEPARATE AND DISTINCT AND DO NOT NECESSARILY
RESPOND IN THE SAME WAY TO SIMILAR MARKETS STIMULUS. A MOVEMENT
IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE
RELATED FUTURES & OPTIONS CONTRACT BEING OFFERED. SEASONAL
DEMAND AND CURRENT NEWS IN COMMODITIES ARE ALREADY REFLECTED
IN THE PRICE OF THE UNDERLYING FUTURES