NEW YORK (AP) — Natural gas futures continued their rise off 10-year lows Thursday on hopes that demand is picking up and plans by drillers to cut production in response to low prices.
Natural gas rose to $2.13 per thousand cubic feet, a gain of 3 percent, in morning trading. Forecasters are predicting a cool spring in the Northeast, which could increase demand for the fuel. Also, utilities are taking advantage of low natural gas prices by using more of the fuel to generate electricity.
Prices are so low that drilling has become unprofitable in most locations, so drillers are starting to cut back exploring for new natural gas.
Prices have fallen to their lowest levels since 2002 because a historically warm winter and increased domestic production have boosted the amount of natural gas in storage well beyond its 5-year average.
The U.S. government reported Thursday that natural gas in storage rose by 47 billion cubic feet to 2.548 trillion cubic feet for the week ended April 20. That's 56 percent above the five-year average.
The report was in line with what analysts expected, however, according to a survey by Platts, the energy information arm of McGraw-Hill. And storage levels have declined slightly from earlier this month, which has led some to believe the market is beginning to rebalance.
But Phil Flynn, an analyst at PFG Best, says whatever increase in demand that comes from cool May weather will not be enough to alleviate the country's natural gas glut. Also, he says drillers will have a hard time cutting back because natural gas is produced along with oil, and new drilling for oil is booming.
"The market is still broken," he says. "The only way to fix this market is a major sell-off."
At current consumption and production rates, the nation's natural gas storage facilities are on track to be full by October, before the annual supply draw-down for winter heating begins.
Oil prices rose slightly to $104.70, a gain of 0.6 percent on hopes that the U.S. economy will continue to grow modestly and that the European debt crisis would not spread further.
Retail gasoline fell to a national average of $3.83 per gallon, the tenth straight day of declines.
In other energy trading, Brent Crude rose to $119.96, a gain of 0.7 percent. Heating oil rose 4 cents to $3.21 per gallon and wholesale gasoline futures rose 2 cents to $3.14 per gallon.