hurricane season speculation lifts natural gas

From FT. Short term gas prices are on their way up.

Hurricane season speculation lifts natural gas
By Jack Farchy
Published: June 15 2010 11:51
Natural gas continued its run of gains on Tuesday morning, touching a fresh 3?-month peak as the prospect of an active hurricane season and unusually hot weather buoyed expectations.

Nymex July natural gas gained 0.9 per cent to $5.049 per million British thermal units on Tuesday, having earlier touched an intraday high of $5.084.

The front-month contract has risen 27 per cent in the past three weeks, reversing an 80 per cent fall that saw it trade below $2.500 in September 2009.

Meteorologists are forecasting one of the most active US hurricane seasons on record this year, which could shut down natural gas production along the US Gulf coast. The National Oceanic and Atmospheric Administration recently estimated the June 1 to November 30 season was likely to bring 14-23 named storms, with eight to 14 strengthening to hurricanes.

The prospect of an active season has been brought into focus in recent days, as NOAA?s National Hurricane Centre warned that a weather system in the Atlantic had a 50 per cent chance of becoming a tropical storm.

?Environmental conditions are expected to remain marginally favourable for this system to become a tropical depression [on Tuesday] before upper-level winds become less favourable on Wednesday,? NOAA said in an outlook at 7am BST on Tuesday.

On the demand side, hot weather in the US has increased expectations of demand over the summer, as increased use of air conditioning spurs higher electricity consumption.

That has led speculative bets on lower gas prices to be retraced. According to the Commodity Futures Trading Commission, net short positions in natural gas were reduced by 33 per cent in the week to June 8.

Analysts at Commerzbank expected that trend to continue: ?At nearly 200 thousand contracts, speculative short positions are still at a high level, so continued short covering is to be expected and this could drive prices further up,? they said.

Elsewhere in commodities markets, Nymex July West Texas Intermediate crude oil rose 77 cents to $75.89 a barrel, while ICE July Brent gained 84 cents to $76.04.

Base metals reversed early losses, with copper up 0.3 per cent at $6,672 a tonne on the London Metal Exchange by mid-morning. Aluminium rose above $2,000 a tonne to hit a 10-day high of $2,007, up 0.8 per cent.