NEGOTIATOR'S TAKE Jun 28, 2016 No Comments

NEGOTIATOR’S TAKE: Natural Gas rising but still at near historical lows   |


06.27.16 – 5th winning season in the last 7 years –

Natural gas prices rose Monday, pushing back toward the 10-month highs set last week as power-sector demand keeps supporting the market.  It’s the fifth winning session in the last seven, and pushes gas toward its fifth straight week of gains. Front-month prices are up 38% since the June contract expired at just $1.963/mmBtu on May 26.

Natural-gas futures for July delivery settled up 5.4 cents, or 2%, to $2.716 a million British thermal units on the New York Mercantile Exchange.  More trading has moved to the August contract, with July expiring at Tuesday’s settlement and options expiring at Monday’s settlement.  August futures settled up 4.7 cents, or 1.7%, to $2.741/mmBtu.

July’s contract hasn’t traded below $2/mmBtu since early March, and summer prices are often higher because of increasing demand for gas-fired power to run air conditioners.  That has spurred much of the rally, along with slight declines in production and a record-low number of working rigs that has some traders expecting larger production declines on the way.


More power generators convinced to burn coal

Demand has kept rising in recent weeks, confounding some who expected the rally would lead power plants to buy other fuels instead.  As hotter weather has increased power demand, average daily gas consumption has climbed to more than 65 billion cubic feet a day in June, up about 1.6% from May, according to Platts Analytics, a forecasting and analytics unit of S&P Global Platts.

The higher natural-gas prices have convinced more power generators to burn coal, but hotter weather and other trends keep pushing gas consumption higher, too, analysts said.  The amount of both wind and hydropower is declining, causing power generators to burn more of both coal and gas to match high demand for air conditioning during an exceptionally warm June, according to Genscape.


Nuclear power increasingly a factor

Nuclear power has also increasingly become a factor, analysts said. Its output is down 1.6 gigawatts a day from a year ago, the equivalent of about 300 million cubic feet a day of gas, according to Schneider Electric SA.  That has helped raise gas demand by about 1.8 bcf a day in the power sector alone and 2.5 bcf a day total from a year ago, according to Platts Analytics.

“Demand has been above general expectations,” said Daniel Holder, Schneider Electric’s commodity analyst in Louisville, Ky. He noted that even after the rally prices are lower than what they were a year ago and 83% off their all-time high from 2005.  “Compared to history, these are still really very low prices” for power generators.


SOURCE: Wall Street Journal

AUTHOR: Timothy Puko | Write to Timothy Puko at:



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