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Natural Gas Futures Hit 22-Month High

October 14, 2016 at 17:27 by Andrew Moran

Two new reports helped natural gas futures hit their highest levels in 22 months on Thursday. One report found that US supplies increased less than expected, while another report boosted the outlook for 2016 and 2017 prices.

November natural gas futures declined $0.06, or 1.83%, to $3.28 per million British thermal units (MBTU) at 16:58 GMT on Friday on the New York Mercantile Exchange. Natural gas futures closed the Thursday trading session at the highest settlement since December 19, 2014.

Over the last six months, natural gas futures have climbed more than 70% because of a wide variety of factors. US drilling has slowed down, a very warm summer raised demand, and colder weather in the coming months could enhance demand and support higher prices even more.

For the past year, natural gas prices have remained low. This has discouraged producers from drilling new wells. Moreover, the number of rigs targeting natural gas decreased more than 50% year-over-year. In the week ending October 7, there are reportedly 94 rigs drilling for natural gas, down from 95 at the same time a year ago.

Natural gas futures were lifted this week after a US government reported cited a smaller supply. According to the Energy Information Administration (EIA) on Thursday, domestic natural gas supplies climbed just 79 billion cubic feet, which is below the average increase of 87 billion cubic feet.

The EIA also raised its 2016 and 2017 forecast for natural gas prices in another report. It increased 2016 projection for natural gas prices by 3.7% to $2.51 per MBTU. For 2017 prices, it hiked its forecast by 7.1% to $3.07. The EIA further warned that consumers will pay 22% more for natural gas this winter.

Investors are warning that the natural gas market is overheated. It could be in store for a correction if natural gas production revs up or if a cold winter does not actually happen.

If you have any questions and comments on the commodities today, use the form below to reply.

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