Traders See Lid on Nat Gas Rally

Natural gas futures have surged in recent weeks, but production levels that still hover near record highs and warm weather are among the catalysts that limit the fuel's near-term upside, according to some traders.

Natural gas futures have rallied more than 25 percent from the low of $2.682 per million British thermal units reached in early September, the Wall Street Journal reported. Natural gas futures closed above $3.68 per million Btu on Friday.

The U.S. Natural Gas Fund (NYSE:UNG), an ETF which tracks NYMEX-traded front month natural gas futures contracts, has surged 20 percent in the past month. Amid supply increases and price declines, UNG has lost 89 percent of its value since it debuted in April 2007.

A rest in the recent natural gas rally could weigh on shares of Dow component Exxon Mobil (NYSE:XOM) and Chesapeake Energy (NYSE:CHK), the two largest U.S. producers of the commodity. Earlier this year, Exxon CEO Rex Tillerson said natural gas producers are "losing our shirts" because of record production levels and tepid demand.

Cheap prices have prompted some electric utilities to switch to cleaner-burning gas over coal, but that has not been enough to return natural gas prices to the levels seen prior to the bursting of the commodities bubble. U.S. producers of the fuel are looking to tap into rising demand in foreign markets in an effort to boost profits on natural gas production.