The NYMEX June natural gas futures contract settled 4.6 cents higher at $4.405/MMBtu on Friday as the market consolidated ahead of the holiday weekend and eyed forecasts for hotter than normal weather into June.
"Despite the short-term weakness, there's a lot of upside risk going forward," said Phil Flynn, senior market analyst at Price Futures Group. "Some of the longer term weather forecasts are not as bearish as they were earlier."
The National Weather Services continues to show the likelihood of above-average temperatures across the bulk of the US in its eight to 14-day forecast, with much of the heat concentrated in the nation's midsection.
In addition, analysts noted that the market was likely squaring away deals Friday ahead of the extended Memorial Day weekend.
"You've got to keep doing the big injections" like we saw Thursday, Flynn said, when the US Energy Information Administration reported a 106-Bcf storage build for the week ended May 16. "We've got a long way to go" to refill inventories, he added. After the report Thursday, the prompt-month contract settled 11.4 cents lower.
Flynn also noted the continued and widening disconnect between natural gas and oil prices. "With oil pushing up to $104[/barrel], and gas where it is, producers are not going to go out of their way to produce gas," he said, which could hamper storage refills.
In addition, "winter gas delivery is currently trading at bargain-basement levels," said BNP Paribas analyst Teri Viswanath, who sees an opportunity "to pre-position ahead of a possible mid-summer rally."
Viswanath warned that storage levels are unlikely to reach the 3.4 Tcf level touted by many at the end of October because of higher gas demand over the summer from power generation, particularly as new plants come online.
The contract traded Friday in a tight range between $4.358-4.411/MMBtu.
The NYMEX settlement is considered preliminary and subject to change until a final settlement price is posted at 7 pm EDT (2300 GMT).
