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.

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.

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.

“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.

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