Bullish weather forecasts helped push natural-gas futures higher Tuesday as traders began shifting their focus from summer air-conditioning demand to a potentially frigid winter.
Abnormal weather helps boost natural-gas prices by driving demand for gas-fired power plants in the summer and spurring use of furnaces in the winter. Sustained heat in Texas and the Southern plains this week is expected to give way to a cold front sweeping the U.S. Midwest and Northeast later next week.
Private weather forecaster WSI Corp. also predicted higher temperatures in late September with hot and dry conditions in the interior western U.S. and northern plains regions, which could further extend demand for electricity from natural-gas-fueled power plants.
Natural-gas futures for October delivery on the New York Mercantile Exchange rose 9.5 cents, or 2.5%, to settle at $3.98 per million British thermal units Tuesday. The contract traded in a range of $3.923 to $4.018 since Monday's settlement.
Analysts say the coming cold front is unlikely to significantly affect natural-gas inventories, but the wave heralds a winter that meterologists expect to be colder than normal.
"It's not a real intense demand situation because it's kind of early in the season, but it should trigger some unexpected overnight demand," Commodity Weather Group President Matt Rogers said. "A lot of folks are going to start pivoting for the winter season."
Prices broke above the psychologically significant $4/mmBtu mark several times Tuesday morning but failed to hold above that line later in the session. Trading ranges have gradually narrowed this month as the milder weather sends weaker signals, according to Pax Saunders, an analyst with Gelber & Associates.
"It's that tightening of the reins," Saunders said. "This is fourth time we've had a breakout in the past two weeks but failed to take out the prior-year high."