NEW YORK—Natural-gas prices jumped to a 10-month high after the U.S. posted a smaller-than-expected increase in the amount of the fuel in storage, relieving some pressure on a well-supplied market.
The heat wave that hit the East Coast, Southeast and Gulf Coast regions last week spurred widespread use of air conditioning for the first time this year, resulting in increased electricity demand. While this seasonal shift was expected, market participants underestimated how much natural gas was used in electricity generation, as many nuclear power plants are down for maintenance, said Pax Saunders, an analyst with Gelber & Associates in Houston.
Futures surged in the seconds following the Department of Energy's release of natural-gas storage data on Thursday and were up as much as 4.9% intraday before settling 16.5 cents, or 3.6%, higher at $4.794 a million British thermal units on the New York Mercantile Exchange. This is the highest close since July 2010 and the biggest one-day dollar gain in more than two months.
The amount of gas in U.S. storage rose last week by 83 billion cubic feet, according to the Energy Information Administration, a wing of the Energy Department. Expectations were for a increase of 93 billion cubic feet. Natural-gas inventories usually fall in the winter due to heating demand and rise in the summer as supplies are replenished.
Mr. Saunders attributed the price spike to "a lot of itchy, trigger fingers" in the market, meaning that Thursday's number—and a "big miss" by analysts' estimates—was just the sign of robust summer demand bullish traders were waiting for.
Natural gas accounts for about a quarter of U.S. electricity generation, and power demand typically rises along with air-conditioning use as warm summer weather arrives.
The reaction to Thursday's inventory report highlights the data's relevance to the isolated U.S. natural-gas market. Gas-futures prices tend to closely track developments in the physical market, so traders pay attention to weather forecasts and the status of power plants. Gas prices tend to show little reaction to moves in currency markets and foreign economic news because the U.S. lacks terminals capable sending the fuel to global markets.
In contrast, crude-oil futures ended higher Thursday despite Energy Department inventory data showing an unexpected rise in oil stockpiles and a larger-than-seen increase in gasoline inventories.
Robust power-sector natural gas use is expected to continue this month, with hotter-than-normal temperatures seen from the Southwest through the Midwest and East Coast for the next two weeks, according to private forecaster WSI Corp.
"You've got early indications that we're going into a hotter-than-expected summer," said Rich Ilczyszyn, a senior market strategist with brokerage Lind-Waldock. "That may give us an increase in demand."
Under the burden of the persistent supply glut, natural gas was among the worst-performing commodities in 2010. Prices of raw materials from crude oil to copper and agricultural staples such as wheat and cotton have all touched multiyear highs in recent months, and natural gas may be receiving a boost as investors look for cheaper physical assets, Mr. Ilczyszyn said.
Natural gas is up 8.8% year to date, while crude oil is up 9.9%.
"Natural gas has not really participated in these huge commodity moves," he said. "As an investor, do I want to buy oil at $100 [a barrel], or natural gas at $4.50?"
