May 23 (Bloomberg) -- Natural gas futures advanced, following crude oil, as a declining dollar increased the lure of commodities as an investment.

Returns from investing in commodities, especially energy, have gained this year as investors sought alternatives to stocks. Natural gas has gained 58 percent and oil is 39 percent higher. A slower-than-average increase in gas stockpiles last week also lifted prices.

``The dollar has been weak and that is attracting new buying for gas and crude,'' said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut.

Natural gas for June delivery rose 16 cents, or 1.4 percent, to settle at $11.857 per million British thermal units at 3 p.m. on the New York Mercantile Exchange. The futures advanced 6.9 percent this week.

There will be no floor trading in New York on May 26 because of the Memorial Day holiday.

The dollar slid to $1.5775 per euro from $1.5733 yesterday. The euro has gained 14 percent since the Federal Reserve began cutting interest rates in September.

``Psychologically, the weak dollar carries a great deal of impact,'' said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. ``A week ago everybody was saying that was the bottom for the dollar, people were unwinding commodities and getting back into stocks, and that lasted three days.''

Oil Prices

Crude oil for July delivery rose $1.38, or 1.1 percent, to $132.19 a barrel in New York. Oil yesterday reached a record $135.09 a barrel. Prices have doubled from a year ago.

``There may be an overall feeling that that the dollar isn't done moving a lot lower, and if that's the case that will buoy prices in all commodities,'' said Florer.

Energy prices, especially for light-sweet crude, will continue to rise until there are substantial signs of reduced demand because of the increase, said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire.

``There's huge demand for diesel, which is made from light sweet, and the only way to snuff that out is through higher prices and that drags the whole complex higher,'' Jarvis said. ``This has driven up all of the distillates, which gives natural gas a bid.''

Supplies of gas jumped 85 billion cubic feet to 1.614 trillion in the week ended May 16, putting stockpiles 3 billion cubic feet below the five-year average, the U.S. Energy Department said yesterday.

Gas Supplies

``The build-up in storage was below the average for this time of year,'' said Beutel. ``We've been spending the last four weeks treading water on supplies. The clock is running in terms of the time we have to get this material into storage.''

The average change in gas supplies for the comparable week over the past five years is a gain of 91 billion cubic feet, according to department data.

``Markets at this price level almost freeze you up, it's difficult to buy and no one wants to sell into the face of it,'' Florer said. ``How aggressive can you sell it when you're going into hurricane season? All it takes is one and we'll be trading $15 again.''

Natural gas futures in New York reached an all-time high of $15.78 per million Btu on Dec. 13, 2005, as damage from hurricanes Rita and Katrina that year curtailed output from the Gulf of Mexico, pushing prices higher.

The 2008 hurricane season, which starts June 1, may be more active than usual with as many as nine forming in the Atlantic Ocean, the National Oceanic and Atmospheric Administration said. Five hurricanes may be major.

At the lower end of the forecast, as few as six Atlantic hurricanes may form, including two major ones, which would make 2008 an average storm year. In the past two years, NOAA predictions have overestimated the number of hurricanes.

To contact the reporters on this story: Reg Curren in Calgary at rcurren@bloomberg.net.

Last Updated: May 23, 2008 15:26 EDT