Natural Gas Rises on Forecasts of Below-Normal Temperatures

Dec. 2 (Bloomberg) -- Natural gas futures rose for a second day in New York on forecasts of below-normal temperatures that may boost demand for the heating fuel.

Futures climbed as colder weather is likely in the Northeast, Southeast and Midwest from Dec. 7 through Dec. 16, according to Commodity Weather Group in Bethesda, Maryland. Prices fluctuated after the Energy Department reported a stockpile decline that was smaller than analysts predicted.

“This is a weather trade,” said Gordon Elliott, a risk-management specialist with FC Stone LLC in St. Louis Park, Minnesota. “People are going to trade on the forecasts, whether they actually pan out or not.”

Natural gas for January delivery rose 7.4 cents, or 1.7 percent, to settle at $4.343 per million British thermal units on the New York Mercantile Exchange after rising as high as $4.377 and dropping to $4.197. Gas futures have declined 22 percent this year.

Inventories fell 23 billion cubic feet in the week ended Nov. 26 to 3.814 trillion cubic feet, the Energy Department said. The median of analyst estimates compiled by Bloomberg showed a decline of 29 billion. A separate survey of Bloomberg users released five minutes before the stockpile report also showed an expected decrease of 29 billion.

The stockpile drop was smaller than the five-year average withdrawal for the week of 36 billion cubic feet, department data show. A surplus to the five-year average rose to 10 percent from 9.5 percent the previous week. A deficit to year-earlier supplies widened to 0.6 percent from 0.1 percent.

Cold Weather

Heating demand from Dec. 8 through Dec. 12 may be 15 percent above normal levels, according to David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri.

“Prices are still seeing a bit of support because of the cooler outlook coming in through mid-December,” said Matt Smith, an analyst with Summit Energy in Louisville, Kentucky. “The forecasts are colder, especially for the key consuming regions of the Northeast and Southeast.”

The low temperature in New York on Dec. 11 may be 26 degrees Fahrenheit (minus 3 Celsius), 5 degrees below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low temperature in Chicago may be 17 Fahrenheit, 7 degrees below normal.

“There will be a swath of snow with this system from the northern Plains to the middle Atlantic coast,” wrote Paul Pastelok, senior forecaster for AccuWeather, in a note to clients. “Another press of cold will follow and could lead to a freeze into Florida.”

Hub Price

Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 7.13 cents, or 1.7 percent, to $4.282 per million Btu on the Intercontinental Exchange, the fourth consecutive increase.

Gas futures volume in electronic trading on the Nymex was 249,882 as of 3:01 p.m., compared with a three-month average of 272,000. Volume was 238,711 yesterday. Open interest was 765,847 contracts, compared with the three-month average of 798,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

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