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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Is The Natural Gas Rally Over?

Tanks

August Natural Gas futures surged to the highest level since the week-ending October 16, 2015 earlier in the week, but sellers came in at $2.812 to stop the rally on concerns the market had advanced too far, too soon. Seasonal traders also came in to take advantage of the high prices based on historical data that shows the market has a tendency to reach a top at this time of year.

Traders did show some resilience, however, by rallying on Thursday, shrugging off bearish stockpile data as traders continued to focus on the weather and the possibility of strong summer demand.

According to Platts Analytics, the hotter weather has increased power demand. Consumption grew about 1.5 percent month-to-date to nearly 67 billion cubic feet a day, despite expectations the recent price surge would lead power plants to seek cheaper fuel.

Power generators continue to burn coal and natural gas to meet consumer needs during this unusually hot June. With weather forecasts calling for a hotter-than-average summer, many traders feel that this usage trend is likely to continue, helping to underpin prices. There is also a general optimism building in the market that a rebalancing is taking place, and this is also providing support.

Fundamental traders cite the high inventories as one reason why the current rally is unsustainable. Inventories as of June 17 reached 3.1 trillion cubic feet, 25 percent above levels from a year ago and 28 percent above the five-year average for…

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