NEW YORK (Dow Jones)--Natural-gas futures finished higher Monday after a drop to a six-month low earlier in the session spurred a round of bargain hunting.
Natural gas for October delivery settled up 2 cents, or 0.5%, at $3.829 a million British thermal units on the New York Mercantile Exchange.
Futures started the day in negative territory, hitting an intraday low of $3.743/MMBtu, the lowest level since March. They then reversed course and slowly rallied, as traders took the opportunity to snap up contracts on the cheap.
"We're seeing this scenario where the market makes fresh inroads to new levels, and we don't trigger any new selling," said Gene McGillian, broker and analyst at Tradition Energy in Stamford, Conn. "The lower we go, the more vulnerable the weaker shorts feel."
Despite Monday's rally, prices are likely to continue marching lower over the next several weeks as the market enters what is known as the shoulder period, analysts said. This is the period of sluggish demand between summer, when gas-fueled cooling needs rise, and winter, when heating needs take over.
Front-month gas futures have held below the psychologically significant $4 level in recent weeks, pressured by the near-record pace of U.S. inland production. Meanwhile, the relatively mild hurricane season has left Gulf Coast production largely untouched.
In addition, the well-supplied gas market is also likely to keep prices in check. On Friday, oil-field service company Baker Hughes Inc. (BHI) said the number of rigs seeking natural gas in the U.S. rose by 20 last week to 912. Although the figure is down from a high of 992 reached in August of last year, it remains elevated by historical standards and is widely expected to lead to additional production.
"The rallies aren't sustainable and probably won't be until we get a forecast for early cold" weather, McGillian said.
On Monday, traders were eyeing a low-pressure area in the South Atlantic. But the National Hurricane Center recently said the formation has a 60% chance of becoming a cyclone, and it remains far from the Gulf Coast production area.