Natural gas futures were surging amid predictions of greater energy needs as temperatures begin to heat up.
Natural gas for July delivery was popping 2.3% to $4.622 per million British thermal units. Earlier the July contract hit a five-day high at $4.645.
"On the weather front, [the National Oceanic and Atmospheric Administration's] updated outlook helps explain the strength in gas futures this morning as the agency forecasts cooling degree days should be 10% higher year-over-year and 67% above the long-term average this week," a Canaccord Genuity Energy Research report said.
A cooling degree day is used to help estimate the energy required for cooling and is defined as the difference between the mean daily temperature and 65 degrees Fahrenheit, the NOAA says on its Web site.
Canaccord Genuity Energy Research says the forecasts suggests that a strong call on gas-fired power generation should be in store over the near term, which should help put a cap on gas storage injections.
Last Thursday, the Energy Information Administration reported an increase in natural gas inventory of 105 Bcf (billion cubic feet), which was above the Street's estimate of 90 Bcf. On Friday, oil services firm Baker Hughes reported that the U.S. gas rig count rebounded by 15 last week to 881 rigs, which erased about two-thirds of the declines reported the previous two weeks. "We note this marks the largest absolute week-over-week increase in gas-directed drilling activity since last November. The knock-on effect of the sticky rig count paints a bearish picture for the second half of the year as current levels of drilling activity should be capable of growing onshore supply by up to 0.5 Bcfpd (per day) per month."
Tradition Energy's Senior Market Research Director Addison Armstrong says that money managers decreased their net-short position in NYMEX natural gas futures in the week ending May 24th by 16,628, or 15%, to 90,382. Swap dealers reduced their net-long position in the derivatives by 5,351 to 210,705, Armstrong noted.
The optionsXpress team says 66,000 call options and 23,000 puts were traded on the United States Natural Gas Fund(UNG) ahead of the three-day Memorial Day weekend. The exchange-traded fund tracks natural gas through futures contracts.
"Some investors might be taking positions in the contract on hopes higher natural gas prices will fuel a rally in shares of the ETF," said the optionsXpress team of high June 12 call option activity.