MARKET WATCH

Here’s what’s fueling a natural-gas price rally

Published: June 15, 2015 3:20 p.m. ET / By Myra P. Saefong / Markets/commodities reporter


The weather gave the natural-gas market a good scare on Monday, causing prices to spike by
more than 5%.


A system over the western Gulf of Mexico could potentially become a tropical storm before
moving onshore in Texas on Tuesday, bringing torrential rains to an area that is already suffering
from major flooding, AccuWeather.com reported Monday.
 

 

 

Weather systems in the Gulf of Mexico can have an impact on energy production in the region,
but Citi Futures analyst Tim Evans said ”there could be more of an impact on onshore demand
due to possible flooding in the Houston area.”


Futures prices natural-gas rallied by 13.9 cents, or 5.1%, on Monday to almost erase all the
losses the July contract NGN15, +1.38% suffered over the past two trading sessions. They
settled at $2.889 per million British thermal units.

 

Given the unofficial start of the summer season on Memorial Day, it is also no wonder that
warmer temperatures throughout much of the U.S. — in particular, the East Coast — helped lift
expectations of cooling demand for natural gas.

 

 

“The East Coast has been baking,” said Richard Gechter, Jr., principal and president of Richard
W. Gechter Natural Gas Consulting. “We have not really had a break in the temps and that
begins to stress the power folks.”


Adding support to the market: “several coal plants are not running and the primary peaking
plants are natural gas,” Gechter said.


In a report released late May, the U.S. Energy Information Administration said the
Environmental Protection Agency’s Clean Power Plan will cause 90 gigawatts of coal plant
capacity to be retired by 2040.


Price action for natural gas, meanwhile, may suggest that natural-gas prices have established a
bottom, but Evans warned that “above-average storage injections may remain the norm” for
supplies.


Supplies in storage rose 111 billion cubic feet to total 2.344 trillion cubic feet for the week ended
June 5, according to the U.S. EIA. That was 753 billion cubic feet higher than last year at the
same time.


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