Three Charts Show How U.S. Gas Rally's at Risk of Summer Bummer

(Bloomberg) -- The bullish traders who’ve pushed U.S. natural gas futures to a five-month high may be in for a summer letdown.

Gas prices have jumped on speculation that rising exports of the fuel, by pipe to Mexico and via tanker to overseas buyers, will send prices to $4 per million British thermal units for the first time since 2014 this summer. A regulatory setback that could delay Energy Transfer Partners LP’s Rover pipeline, a major supply conduit from the biggest U.S. shale basin, also helped bolster the rally.

The bullish momentum may be short-lived, however. Gas prices are already trading above the five-year average, even though stockpiles remain above normal for the time of year. That’s a sign that the market may be poised for a downturn, said Tim Evans, an energy analyst at Citi Futures Perspective in New York.

Three Charts Show How U.S. Gas Rally's at Risk of Summer Bummer

After a mild winter, gas inventories are 14 percent above the five-year average for the period. While a blistering summer -- combined with the boost in exports and a slowdown in production from shale reservoirs -- could make short work of the glut, a cool-down would have the opposite effect. Take this past winter as a cautionary tale of how quickly weather can fuel and kill gas rallies. Gas capped the best December rally in six years amid a cold blast, but prices plunged with the start of the year as frigid conditions faded.

Three Charts Show How U.S. Gas Rally's at Risk of Summer Bummer

Speculators are piling into the bullish trade. Money managers are holding the most net-long positions in gas contracts since April 2014, when the market was trying to dig its way out of a record supply deficit after the polar vortex sent gas demand from households and power plants to an all-time high.

Three Charts Show How U.S. Gas Rally's at Risk of Summer Bummer

“If we get into June and the weather is just gorgeous, where cooling demand suddenly disappears, that could create a scenario where this rally falls apart,” Evans said. Prices could drop to $2.80 in that case, he said.

Gas futures advanced 4.8 percent last week to $3.424 per million Btu on the New York Mercantile Exchange, the highest settlement since Dec. 30.