NYMEX natural gas edged up today to trade near $4.6/mmBtu after a 3.8% decline yesterday. Natural gas hit a high of $4.929/mmBtu last week, the highest level since February 2014 but has witnessed mixed trade since then.
Natural gas rallied sharply in last few days amid signs of early start of winter with stocks well below average levels. The rally is however faltering as market players question justification for recent price gains.
Market player are now positioning for US weekly inventory report today. EIA is expected to note a 110 Bcf decline in US natural gas stocks as against 5-year average decline of 25 Bcf. The sharp drop is expected due to severe cold weather in US last week which increased heating demand.
US gas stocks are well below average levels and sharp drawdown will widen the deficit further. While this is positive for natural gas price it has been factored in to some extent.
US weather forecasts are pointing to cold weather in US Midwest in coming days which will keep heating demand high however weather is expected to normalize in US Northeast. Also challenging the rise in gas price is widening gap between coal and gas price which reduces demand from power sector.