August Natural Gas futures soared this week to its highest level since the week-ending August 21, 2015. The catalyst behind the rally was a forecast for above average temperatures the next two weeks in most of the high demand areas of the U.S.
Early in the week, the market received a boost on concerns about a drop in production following an explosion at a processing plant. The explosion and fire occurred at a processing plant in Mississippi on Monday. According to S&P Global Platts, as much as 600 million cubic feet a day of output could be halted if it cannot be rerouted to another plant.
The rally gained traction mid-week after the release of a forecast that called for hot temperatures over the next two-weeks. This is expected to boost natural-gas demand.
I wrote last week that the current rise in natural gas demand was confounding some who expected a 40 percent rally in prices the past month would lead power plants to buy other fuels instead. This hasn’t happened yet, and as hotter weather has increased power demand, gas consumption grew about 1.5 percent month-to-date to nearly 67 billion cubic feet a day, according to Platts Analytics.
According to Genscape, Inc., a data provider, the higher natural gas prices have convinced some power generators to burn, coal, but gas consumption is still on the rise in the power sector. This has helped increase bullish sentiment in the gas market despite high stockpiles and production not far from record…