Natural-Gas Prices Surge as Summer Cooling Season Switches On

Natural gas has been a major driver of inflation, and lately prices have been accelerating. In addition to heating and cooling, gas prices factor into the cost of producing electricity, fertilizer, plastic, cement, steel and glass. Profits are being pinched at businesses ranging from beer-box makers and wallboard manufacturers to bitcoin miners, and higher costs are trickling down to prices for consumers and putting pressure on the Federal Reserve to raise interest rates.

Fuel traders and analysts say prices could climb even higher if hot weather arrives and air conditioners are cranked up before enough gas can be injected into storage facilities ahead of winter, when the fuel is burned for heat. 

U.S. gas inventories ended last week more than 15% lower than the five-year average, the Energy Information Administration said Thursday morning. The deficit of stored gas grew during the week thanks to a smaller-than-normal build of stockpiles and pushed prices higher.

Inventories have been whittled down by strong demand for liquefied natural gas among European buyers replacing Russian gas and domestic drillers who have been slow to increase production despite the highest prices in years. Meanwhile, the highest Appalachian coal prices ever and reduced hydropower due to drought in the U.S. West have boosted demand for electricity generated by burning gas.

“There’s almost no ceiling for natural gas,” said Kent Bayazitoglu, analyst at the energy consultant Baker & O’Brien Inc. “You can reduce your driving a lot easier than you can reduce your natural-gas consumption.”

Hedge funds and other speculators this month reduced their bets on rising prices as futures climbed from about $7 at the end of April, Commodity Futures Trading Commission data show. The bullish bets that remain are nearly equal to outstanding short positions, or wagers that prices will fall.

The trading firm Ritterbusch & Associates told clients Wednesday that low inventories and the high number of bets on falling prices were the reasons it lifted its forecast for July futures to rise as high as $10, up from $9. The idea is that if prices keep rising, traders with short positions will have to buy futures to close out their bets, pushing up prices even more.  

High oil and gasoline prices could help keep a lid on natural-gas prices by encouraging drilling in such places as West Texas, where crude is the target and a lot of gas is the byproduct, Mr. Bayazitoglu said. He expects natural-gas prices to ease once the first big summer heat wave passes. 

 “It’s like a roller coaster,” he said. “You don’t get nervous going down, but going up.”

Write to Ryan Dezember at ryan.dezember@wsj.com