Natural Gas Futures Rise on Forecasts for Below-Normal Temperatures

Natural gas futures advanced for the first time this week on forecasts for below-normal temperatures across the U.S. Midwest, South and East.

Gas gained as heating demand in the Northeast will rise as much as 32 percent above normal through Dec. 8, David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri, said in a report today.

“It’s a weather-sensitive market,” said Kyle Cooper director of research at IAF Advisors in Houston. “If you’re bearish, you have to be concerned that if the balance of the winter turns cold, that could change the outlook quite a bit.”

Natural gas for January delivery rose 8.9 cents, or 2.1 percent, to settle at $4.269 per million British thermal units on the New York Mercantile Exchange. The fuel rose as high as $4.324 and fell as low as $4.164.

Demand for gas, which peaks during the cold-weather months, drove futures above $6 per million Btu last January. About 52 percent of U.S. households use natural gas for heating, according to the Energy Department.

The forecast has moved in the colder direction, MDA Federal Inc.’s EarthSat Energy Weather in Rockville, Maryland, said in a report today.

Natural gas extended gains after weather models at 11 a.m. showed colder-than-expected weather through Dec. 8, Cooper said.

New York High

The high temperatures in New York tomorrow will reach 45 degrees Fahrenheit (7.2 Celsius) compared with a normal high of 47, according to AccuWeather Inc. in State College, Pennsylvania. The high in Chicago will reach 32 degrees, 9 degrees below normal.

“You get forecasts for cold weather and the market reacts a little bit,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “But without sustained forecasts for that kind of need, the market can’t sustain these rallies.”

Natural gas has declined 23 percent this year as stockpiles rose to record levels of 3.843 trillion cubic feet in the week ended Nov. 12. The market needs several weeks of colder-than- normal weather to chip away at the surplus, McGillian said.

The Energy Department may report tomorrow that stockpiles fell by 29 billion cubic feet in the week ended Nov. 25, according to a median of 12 analyst estimates compiled by Bloomberg. The five-year average decline for the week is 36 billion cubic feet.

Gas Volatility

“The volatility today will be driven by expectations about tomorrow’s report,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. Rising production and near-record inventories will restrain any rally, he said.

U.S. gas production rose 3.7 percent in September as output from onshore wells increased, the Energy Department reported Nov. 29. Output climbed to 75.14 billion cubic feet a day from a revised 72.44 billion in August, the department’s Energy Information Administration said in a monthly report known as EIA-914.

The number of gas rigs operating in the U.S. rose last week by 17 to 953, according to data published yesterday by Baker Hughes Inc. The total was down 41 percent from a peak of 1,606 in September 2008.

The bearish inventory surplus is competing with cold weather and an improving economy, Cooper said.

Employment increased by 93,000, the most since November 2007, after a revised 82,000 rise in October that was almost double the initial estimate, according to figures released today from ADP Employer Services. Small firms added more workers than at any time since the recession began in December 2007.

“High inventories are keeping a lid on prices on the upper end, while an improving economy and a low absolute price is preventing a massive sell-off,” said Cooper.

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 48 cents, or 1.2 percent, to $4.2107 per million Btu on the Intercontinental Exchange.

Gas futures volume in electronic trading on the Nymex was 218,460 as of 2:42 p.m., compared with a three-month average of 273,000. Volume was 189,643 yesterday. Open interest was 759,702 contracts, compared with the three-month average of 799,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net.

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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