Reuters reported that US natural gas futures ended higher on Monday for the fifth straight day, with Northeast and Midwest forecasts calling for cool weather for later this week and next week driving the front contract to a new high for the year.

But despite prospects for early heating load, many traders and analysts remained skeptical of the upside with storage and production still at or near record highs.

Competition from low-priced coal could also curb some of the buying enthusiasm. As gas prices push well above USD 3 per mmBtu gas could become less competitive with coal in the power generation market.

Concerns are growing that some utilities that have been burning cheaper gas to generate power could switch back to coal. Loss of that demand, which helped prop up gas prices all summer, could force more gas into a well supplied market.

Producers, too, could be drawn in if prices move much higher, opting to hook up wells that have been drilled but not flowing because gas prices below USD 3 were not very attractive.

Gelber & Associates analyst Aaron Calder said in a report that "The onset of heating demand and lack of storage (capacity) concerns have fueled the rally we've seen the past 10 days. But it seems that traders have forgotten that (storage is) still extremely full at the moment and low coal prices could reverse the fuel switching that has boosted natural gas demand.”

Source - Reuters

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