atural-gas futures climbed to their highest levels in more than 10 months as a heat wave across the eastern U.S. boosted the demand outlook for the power-plant fuel.
Natural gas for July delivery settled 12 cents, or 2.6%, higher at $4.827 a million British thermal units on the New York Mercantile Exchange, the highest closing price since July 2010.
Futures have surged 14% since May 20 as forecasters predicted a blast of early summer heat would last through the middle of June in major cities from Texas through the Northeast.
Natural gas accounts for about a quarter of U.S. electricity generation, and power demand tends to rise along with air conditioning use during the summer.
"This market continues to key primarily off of warm weather forecasts," said Jim Ritterbusch, president of energy advisory firm Ritterbusch & Associates, in a note to clients.
Warmer-than-normal temperatures are expected through Friday across much of the eastern two-thirds of the U.S. Houston, St. Louis, Chicago and New York City are expected to see daily highs above 90 degrees Fahrenheit this week, meteorologists with MDA EarthSat said Monday.
Temperatures toward the middle of the month should moderate across the northern tier of the country, the private forecaster said, with warmer-than-normal temperatures generally limited to the Southeast and the Gulf Coast.
"The forecasts suggest a strong call on gas-fired power generation over the near term," analysts with Canaccord Genuity said Monday in a research note.
Traders on Monday also watched a cluster of thunderstorms in the Caribbean Sea that the National Hurricane Center says has a 50% chance of forming a tropical cyclone during the next 48 hours. The system is expected to move slowly toward the north or northwest, government forecasters said Monday afternoon.
June 1 marked the beginning of Atlantic hurricane season, and natural-gas prices can rise if storms are expected to enter the energy-rich Gulf of Mexico. The region last year accounted for about 10% of U.S. gas production.
Despite strong gains in recent weeks, the gas market remains under pressure from the view that strong production growth will continue. The number of drilling rigs targeting natural gas in the U.S. rose last week for a second consecutive week, to 887, oilfield-service provider Baker Hughes said Friday. The count has fallen from last year's highs near 1,000, but the current pace of activity is expected to lead to further production increases.
"Fundamentally, there's really not a case that you can make" for sustained gains above $5/MMBtu, said Larry Young, president of Covenant Trading. "I think it's a healthy bounce. But we're still near the bottom" of the historical range in natural-gas prices.
The benchmark futures contract hasn't ended above $5 since June 2010.