NEW YORK (Dow Jones)--Natural-gas futures gained 3.9% Thursday after U.S. gas inventories posted a smaller increase than normal for this time of year, another signal of higher demand amid slowing gas production.
Natural gas for June delivery rose 8.7 cents to settle at $2.340 a million British thermal units on the New York Mercantile Exchange, extending the rally that has carried gas futures 23% higher from a decade low of $1.907/MMBtu. Prices have risen for seven of the past 10 sessions.
U.S. stockpiles rose by 28 billion cubic feet in the week ended April 27, according to weekly data from the U.S. Energy Information Administration, below analysts' average estimate and well under the 79-bcf average increase for the week.
The meager inventory build was due in part to cooler weather in the Northeast that lifted gas-fired heating demand. Roughly half of U.S. homes are heated using natural gas, so low temperatures can have a big impact on weekly fuel usage.
But the data also came as traders have focused on recent output cuts from Exxon Mobil Corp. (XOM) and others that suggest low prices are starting to reduce supplies.
"It's had a nice pop," said John Woods, head of natural-gas trader JJ Woods Associates. He said higher prices could be ahead in the short term. "I could see this thing getting into the mid $2.40 levels before dropping."
Total U.S. inventories rose to 2.576 trillion cubic feet, EIA data showed, 50% above average for the week. Less than a month ago, traders faced inventories that were close to 60% above five-year average levels, causing concern that record-high stocks would fill storage to capacity by the end of this year.
Still, some analysts and investors are skeptical that slowing production will keep prices rising. For one, U.S. production data have only shown a small drop from record levels reached in January. An especially hot summer, and increased demand for power used for air conditioning, may still be necessary to help lower the supply glut.
"This market will require an early start to a hot summer in order to push nearby values much above the $2.50 level," said Jim Ritterbusch, head of trading advisor Ritterbusch and Associates