The development is coming as forecasts indicate more weather for the US and this is expected to stir more heating demand.
Front-month contract, which posted a 2012 high of $3.546 per million British thermal units on Tuesday last week, has climbed 20% in the last two weeks as traders anticipated the pick-up in demand from the season’s first cold snap.
But with inventories at record highs for this time of year and production at or near an all-time peak, most fundamental traders remain sceptical of the upside, particularly with the early chill expected to be short-lived, Reuters reported.
“We ended up a little on the day because there’s some cold weather around this week that is impacting demand, but expectations for above-average temperatures (in the extended forecasts) were weighing on the market,” Eric Bickel, analyst at Summit Energy in Kentucky, told the news wire.
After a chill over the next four to five days, private forecaster MDA EarthSat expects weather in the north-east and midwest, key gas-consuming regions, to warm to normal or above normal late in the week and next week.
Front-month gas futures on the New York Mercantile Exchange ended up 0.7 cent at $3.403 per million British thermal units after trading between $3.327 and $3.431. Deferred months fared better, mostly settling between 1.5 and 4 cents higher.
Stronger support in forward contracts widened the January premium to November for a fourth straight day, with the spread gaining 1.1 cents to 44.7 cents. That spread is up about 21% in the last four sessions as milder extended forecasts prompted traders to focus on true winter months.
Concerns about competition from low-priced coal may also be weighing on prices. As prices for gas pushed well above $3 over the last two weeks, it became less competitive with coal and may have prompted some utilities that were burning cheaper gas for power generation to switch back to coal.
Most analysts agree gas prices need to be well below $3 this autumn to ensure switching back to gas. Loss of that demand, which helped prop up gas prices all summer, could force more gas into already-packed inventories.
There are also concerns that if gas prices move much higher, producers could opt to hook up wells that have been drilled but not flowing because gas prices below $3 were unattractive.