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Natural Gas Futures Gain on Outlook for Higher Cooling Demand

Natural gas futures climbed to the highest price in more than three weeks on forecasts of above-normal temperatures that may boost demand from power plants.

Gas advanced 3.6 percent after forecasters including MDA EarthSat Weather in Rockville, Maryland, predicted hotter-than-normal weather in the central and eastern U.S. through June 10. Temperatures may be up to 14 degrees above normal in parts of the southern central U.S., according to MDA.

“The return to hot weather is giving us a little bit of a psychological boost,” said Phil Flynn, vice president of research at PFGBest in Chicago. “Yesterday we had a very bearish storage injection, and the warm weather was the only thing that kept the market from cracking altogether.”

Natural gas for July delivery rose 15.8 cents to $4.518 per million British thermal units on the New York Mercantile Exchange, the highest settlement price for a contract closest to expiration since May 4 and the biggest percentage gain since April 28.

Gas prices are trading near the 61.8 percent Fibonacci retracement level after reaching a 14-week high of $4.729 per million British thermal units on May 2. Some technical traders view this move as a signal that prices will climb.

Fibonacci analysis is based on the theory that prices tend to drop or climb by certain percentages after reaching a high or low.

Gas traders were buying back previously sold contracts before the Memorial Day weekend in the U.S., Pax Saunders, an analyst at Gelber & Associates in Houston, said in a note to clients today.

Pre-Weekend Trading

Contract volume rose during the day “as traders picked up the short covering to square those books ahead of the long weekend,” Saunders said. Gas futures volume in electronic trading on the Nymex was 258,731 as of 2:41 p.m., compared with the three-month average of 307,000.

Volume was 271,680 yesterday. Open interest was 909,997 contracts. The three-month average open interest is 943,000. The exchange has a one-business-day delay in reporting open interest and full volume data.

Warm weather can increase demand for air conditioning, sparking demand for gas from power generators. The high temperature in Dallas on June 4 may be 99 degrees Fahrenheit (37 Celsius), 10 above normal, according AccuWeather Inc. in State College, Pennsylvania. The high in New York may be 80 degrees, 4 above normal.

Cooling demand in the U.S. may be 7 percent above normal from June 2 through June 6, said David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri.

Power plants use about 30 percent of the nation’s gas supplies, according to the Energy Department.

Gas Rigs

The number of rigs drilling for natural gas in the U.S. rose by 15 this week to 881, according to data from Baker Hughes Inc. Gas rigs climbed for the first time in three weeks and are down 11 percent from the 2010 high of 992.

Gas stockpiles rose 105 billion cubic feet in the week ended May 20 to 2.024 trillion cubic feet, the department reported yesterday. The five-year average storage change for the week is an increase of 95 billion cubic feet, department data showed.

Supplies were 1.3 percent below the five-year average last week, narrower than a deficit of 1.8 percent the previous week. Storage levels were 10 percent below the level a year earlier compared with 11 percent a week earlier.

“We certainly could see storage refill to the 3,800 bcf level in 2011 (and maybe set a record), but, at this point, we do not expect gas in storage to reach peak capacity of 4,050” billion, analysts including Cameron Horwitz at Canaccord Genuity in Houston said in a note to clients today.

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