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Natural Gas Rallies on Smaller Supply Build, Winter Weather

November 7, 2019 at 15:43 by Andrew Moran

Natural gas futures are rallying on Thursday after the US government reported a lower-than-expected gain in domestic inventories. The energy source has been finding momentum on wintry weather as many parts of the US are being blanketed with lower temperatures and snowfall. Can natural gas finish the year in the green?

December natural gas futures soared $0.045, or 1.59%, to $2.87 per million British thermal units (btu) at 14:42 GMT on Thursday on the New York Mercantile Exchange. Natural gas prices are poised for a tremendous weekly gain of 7%, adding to its 28% surge over the last month. Despite the huge rally, natural gas is still down nearly 2% year-to-date.

According to the US Energy Information Administration (EIA), domestic inventories of natural gas climbed by 34 billion cubic feet for the week ending November 1. This falls short of the market forecast of 39 billion cubic feet. In total, stockpiles stand at 3.729 trillion cubic feet, up 530 billion cubic feet from the same time a year ago. They are also 29 billion cubic feet above the five-year average.

This comes just one day after the EIA published a report that found a growing portion of US natural gas output is associated-dissolved energy (natural gas produced from oil wells), which is caused by a jump in crude production. Last year, Permian, Bakken, Eagle Ford, Niobrara, and Anadarko, which are five major oil-producing US regions, accounted for 12% of total national production.

Natural gas prices have been getting support on weather patterns. The latest forecasts show cooler-than-expected temperatures in many parts of the US, and a lot of areas are being blanketed in snow. This is a boon for the energy commodity because cold weather stimulates demand and raises prices due to consumers turning on the heat and consuming more power.

Investors were immensely bullish at around this time because projections suggested there would be a supply deficit. However, American production has reached all-time highs, adding to domestic inventories. Plus, there is a vast demand worldwide as many markets – developed and developing – turn to the so-called bridge fuel to power their countries.

The bearish sentiment that has paralyzed the industry in recent months is beginning to diminish, according to the US Commodity Futures Trading Commission (CFTC) data. Hedge funds and money managers have decreased their net shorts for the week ending October 2019, but bearish speculation still trumps bullish bets.

In other energy markets, December West Texas Intermediate (WTI) crude oil futures advanced $0.68, or 1.21%, to $57.03 per barrel. December Brent crude futures rose $0.45, or 0.73%, to $62.19 a barrel. December gasoline futures were unchanged at $1.625 per gallon. December heating oil futures were also flat at $1.924 a gallon.

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