Natural Gas Rises to Five-Week High as Heat Buoys Fuel Demand

Natural gas advanced to a five-week high in New York on speculation that lingering U.S. heat may bolster demand for the power-plant fuel.

Gas rose 0.5 percent after forecasts from MDA Weather Services showed above-normal temperatures across the lower 48 states from Sept. 9 through Sept. 13. A low-pressure system about 150 miles (240 kilometers) southeast of Puerto Rico has a 50 percent chance of becoming a tropical cyclone in the next 48 hours, according to the U.S. National Hurricane Center.

“The late-breaking summer heat is driving prices higher,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “Those tropical storms could indeed cause supply disruptions. If we start to see a pickup in tropical activity that will bring onshore rain, that will dampen the Midwest heat. That is a load killer.”

Natural gas for October delivery climbed 1.7 cents to $3.683 per million British thermal units on the New York Mercantile Exchange, the highest settlement since July 24. Trading volume was 5 percent below the 100-day average at 3 p.m. Futures are up 9.9 percent this year.

The discount of October to November futures narrowed 1 cent to 8.4 cents. October gas traded 31.1 cents below the January contract, compared with 31.9 cents yesterday.

Options Trading

October $3.60 puts were the most active options in electronic trading. They were 0.9 cent lower at 7.4 cents per million Btu on volume of 363 at 3:05 p.m. Puts accounted for 61 percent of trading volume. Implied volatility for October at-the-money options was 31.64 percent at 3 p.m., compared with 31.63 percent yesterday.

The high temperature in Chicago on Sept. 10 may be 87 degrees Fahrenheit (31 Celsius), 9 above normal, according to AccuWeather Inc. in State College, Pennsylvania. Two days later, the high in New York may climb to 85, 8 above average, before dropping to a seasonal 79 degrees on Sept. 17. Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration.

There’s a 20 percent chance that a disorganized storm over Mexico’s Yucatan Peninsula and part of the Gulf of Mexico will become a cyclone over the next 48 hours, the hurricane center said in a 2 p.m. advisory.

The system near Puerto Rico is expected to spread heavy rain and gusty winds over that island, along with portions of the Leeward Islands, the Virgin Islands and Hispaniola, in the next day or so, the center said. Sept. 10 is the statistical peak of the Atlantic hurricane season.

Value Buying

“With Gulf of Mexico surface temperatures quite warm, the prospect of these systems organizing further and tripping into the Gulf, where they could blow up quickly into monsters, has caught the attention of some value buyers,” John Kilduff, partner at Again Capital LLC and editor of the Energy OverView newsletter in New York, wrote today.

Gas prices are “an attractive sale” at the current level before rallying into the winter-demand season, he said.

The Gulf will account for 5.7 percent of U.S. gas production this year, according to the Energy Information Administration, the Energy Department’s statistical arm.

Gas inventories probably rose 54 billion cubic feet last week, based on the median of 18 analyst estimates compiled by Bloomberg. The estimates ranged from gains of 46 billion to 60 billion. The five-year average increase for the period is 60 billion, EIA data show.

Storage Outlook

Supply increases may accelerate in the coming weeks and “that development may restrict or reverse the current rally,” Viswanath said.

U.S. inventories totaled 3.13 trillion cubic feet in the week ended Aug. 23, 1.5 percent above the five-year average for the period, according to the EIA. A deficit versus year-earlier levels narrowed to 7 percent from 7.2 percent the previous week.

The government expects stockpiles to peak at 3.8 trillion at the end of October before the winter heating season, according to its Short-Term Energy Outlook released on Aug. 6.

Ample storage levels this year and in 2014 “imply little upside to U.S. natural gas prices,” Sabine Schels, an analyst with Bank of America Corp. in London, said in a note to clients today. “The latest natural gas producer earnings reports indicate that the structural uptrend in output remains firmly in place.”

Gas production will increase 1 percent this year to an all-time high of 69.89 billion cubic feet a day, climbing for the sixth straight year, the EIA said in its monthly outlook.

The U.S. met 87 percent of its own energy needs in the first five months of 2013, on pace to be the highest annual rate since 1986, according to EIA data.

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net

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

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