Oil traders watch as sanctions squeeze Iran

Bailout Doubt Rout

Natural-gas prices have surged in recent weeks, but competition from coal and expectations for warm weather are about to put the brakes on the rally, traders and analysts said.

A must read in the Wall Street Journal on natural gas! They report that, “Natural-gas futures have rallied more than 25% from the low of $2.682 per million British thermal units reached in early September. On Friday, the contract for November delivery settled 0.1% higher at $3.682 per million BTUs on the New York Mercantile Exchange. For the week, the front-month contract rose 2.3%."

Coal represents a roadblock that is likely to keep prices from moving much higher. Utilities began ramping up their use of natural gas in 2009 when prices for the fuel dropped below those of coal. The switch accelerated this year when natural-gas prices slid to decade lows. In July demand for natural gas from power plants hit a record 1.1 million cubic feet, up more than 15% from the prior year, according to the latest information available from the Department of Energy's data service. Now weak demand for coal has eroded those prices, while natural gas prices are climbing.  "Gas prices can't really shoot much more above $3.50 or $4" because then utilities pile back into coal, said Shiyang Wang, natural-gas analyst at Barclays Capital. Brison Bickerton, managing director at Freepoint Commodities, which  trades both natural gas and coal, said even at current prices, natural gas is likely losing some demand to coal. Traders also are pointing to the weather as another cap on prices. Traders have been expecting cooler weather in the Midwest and Northeast in the coming weeks. That would boost demand for heating fueled by natural gas. Longer-term forecasts tell a different story. The National Oceanic and Atmospheric Administration said it expects above-normal temperatures in much of the U.S. during the final three months of the year. About half of all homes are heated using natural gas, and winter is the peak season for demand.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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