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US Natural Gas Update: Futures Rise on Weather and Small Inventory Build Expectation

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US natural gas futures maintained earlier gains in after-hours trading on Wednesday as forecasts turned warmer and traders positioned ahead of a government storage report expected to show a smaller-than-normal inventory build.

The front-month Henry Hub contract and the continuous contract both rose 2.78% to $3.255 per million British thermal units.

Weather forecasts provided the primary catalyst for gains. The Commodity Weather Group said US forecasts shifted hotter, with above-normal temperatures expected across the Mid-Atlantic, Midwest, and Interior West through Jun. 12, according to Barchart.

The 1-15 day outlook added 5.6 degrees Fahrenheit to the Lower 48 forecast, keeping demand more firmly oriented toward cooling-season strength, Gelber & Associates said in a Wednesday note, adding that power-sector demand remains the clearest bullish driver as the market looks toward mid-June.

Total lower-48 natural gas demand was estimated at 68.7 Bcf/d on Wednesday, down 0.6 Bcf/d from the previous day but up 1.5% from a year earlier. Celsius Energy said power burn late Wednesday reached 24.1 Bcf/d, up 0.5 Bcf/d from Tuesday.

Longer-term support came from The Edison Electric Institute, which reported that US Lower-48 electricity generation rose 6.4% year over year to 81,619 gigawatt-hours in the week ended May 30. For the year ended May 30, power output increased 2.18% from a year earlier to 4.34 million GWh, it said.

Market attention is now turning to Thursday's Energy Information Administration storage report. Gelber & Associates estimates a 95-Bcf injection for the week ended May 30, below both the 122-Bcf build recorded during the comparable week last year and the five-year average increase of 101 Bcf.

"A 95-Bcf injection would be materially tighter than both last year and the seasonal norm, but still large enough to remind the market that storage remains comfortable unless heat strengthens further or LNG demand rebounds more convincingly," the firm said.

Other analyst estimates for the report are as high as 99 Bcf.

Barchart, citing BNEF data, reported that Lower-48 dry gas production rose to 109.6 Bcf/d on Wednesday, up 0.5 Bcf/d from Tuesday and 3.2% higher than a year ago.

Meanwhile, LNG gas export demand remained constrained by ongoing maintenance at export facilities. LNG feedgas flows totaled 17.0 Bcf/d on Wednesday, up 0.1 Bcf/d from the previous day but down 6.6% from a week earlier.

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