On the New York Mercantile Exchange, natural gas futures for delivery in August traded at USD3.131 per million British thermal units during U.S. morning trade, gaining 0.55%.
It earlier rose by as much as 1.4% to trade at USD3.163 per million British thermal units, the highest for the front-month contract since December 28, 2011.
The August contract is due to expire at the end of trading on Friday, July 27.
Meanwhile, the more actively traded contract for September delivery climbed 0.4% to trade at USD3.122 per million British thermal units. The September contract rose by as much as 1.2% earlier to trade at a session high of USD3.155.
A bout of hot weather across much of the country over the last several weeks helped boost natural gas prices. Spot prices have rallied nearly 37% in the past five weeks, as extreme heat conditions across the U.S. boosted cooling demand for the fuel.
The recent gains helped push natural gas futures into positive territory for 2012. The fuel is now up 4.5% in 2012. Concerns over bloated inventories and weak winter demand dragged prices down to a decade low of USD1.907 per million British thermal units on April 19.
The National Weather Service's six-to-ten-day outlook issued on Monday called for above-normal temperatures for much of the eastern two-thirds of the nation.
Weather service provider AccuWeather said that it expected temperatures in the U.S. Northeast and Midwest to hold above normal this week, with highs hovering in the 90-degree-Fahrenheit-level.
Warmer-than-normal temperatures increase the need for gas-fired electricity to power air conditioning, boosting demand for natural gas. Natural gas accounts for about a quarter of U.S. electricity generation.
But traders were weary of pushing prices high amid ongoing concerns over elevated U.S. storage levels.
The U.S. EIA said in its weekly supply report last week that natural gas storage in the U.S. rose by 28 billion cubic feet to 3.163 trillion cubic feet last week, narrowing the surplus to last year’s level to 19.2%.
Gas supplies are only 17.5% above the five-year average level for the week, down from a surplus of as high as 60% earlier in the year.
However, concerns over U.S. supply levels remain. U.S. gas inventories did not hit the milestone 3 trillion cubic feet level until August 31 of last year. Stocks peaked last year in November at a record 3.852 trillion cubic feet.
Market analysts have warned that without strong demand through the rest of the summer, gas inventories will reach the limits of available capacity later this year.
The storage surplus to last year will have to be cut by at least another 260 billion cubic feet in the 17 weeks left before winter withdrawals begin to avoid breaching the government's 4.1 trillion cubic feet estimate of total capacity.
Early injection estimates for this week’s storage data range from 21 billion cubic feet to 50 billion cubic feet, compared to last year's build of 48 billion cubic feet. The five-year average change for the week is an increase of 61 billion cubic feet.
From a technical standpoint, market participants noted that prices have further room to move higher after futures closed above the key USD3.00-level for the first time since January.
Chart watchers said prices could rally to as high as USD3.24 in the near-term.
The USD3.00-level is psychologically important to some traders, who see that price as the point at which power plants will begin switching from natural gas to coal.
Speculation that utility providers in the U.S. were switching from pricier coal to cheaper natural gas helped boost prices off a 10-year low of USD1.902 hit in mid-April.
Elsewhere on the NYMEX, light sweet crude oil futures for delivery in September rose 0.5% to trade at USD88.60 a barrel, while heating oil for August delivery eased up 0.05% to trade at USD2.820 per gallon.
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