Natural gas has been enjoying a sizzling rally lately. The benchmark gas futures contract fell to a multidecade low of $1.64 per million British thermal units (MMBtu) this winter because of unseasonably warm weather and weak heating demand. Even as recently as mid-May, gas traded for about $2 per MMBtu. But since then, it has soared to $2.80 as hot weather in the western U.S. has ramped up electricity demand. Gas-fired power plants, which now account for more of the nation's electricity than any other source, are working hard to keep up.
But this looks like one rally that may be running out of steam. Stephen Schork, editor of the energy trading newsletter The Schork Report, says he was not surprised by the late-spring rally, noting that summer weather forecasts calling for continued heat are "as bullish as it gets" for natural gas. Still, he predicts that gas held in storage will grow to a new record high by the end of the autumn, which should curb further price gains. And the downturn in manufacturing means that factories and other industrial customers are burning less gas this year than they did in 2015. The bottom line: If natural gas prices haven't peaked already, they will soon, he reckons.
