Natural Gas Climbs to Five-Month High on Outlook for Hot Weather

Natural gas futures rose to a five-month high in New York on forecasts for hotter-than-normal weather that would boost fuel demand from power plants.

Gas advanced 0.3 percent after climbing as much as 6.5 percent as MDA EarthSat Weather in Gaithersburg, Maryland, predicted above-normal temperatures across most of the U.S. through July 11. The high in Chicago tomorrow may be 101 degrees Fahrenheit (38 Celsius), 18 above normal, according to the National Weather Service in Silver Spring, Maryland.

“The main market driver is this heat and increased cooling needs in the coming weeks,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Prices have some momentum but we’ll need to see six weeks of these kinds of temperatures to push gas above $3.”

Natural gas for July delivery gained 0.7 cent to settle at $2.774 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since Jan. 11. Gas has climbed 46 percent since falling to a 10-year intraday low of $1.902 per million Btu on April 19.

July gas futures expired today. The more actively traded August contract fell 0.9 cent to 2.798 per million Btu.

The expiration of the July contract and a key technical indicator caused the market to pare gains toward the end of the session, said Pax Saunders, an analyst at Gelber & Associates in Houston.

“The market started to look overbought once we got through the 200-day moving average near $2.85,” Saunders said. “The contract expiration contributed to the volatility.”

Contract Spread

The price discount, or spread, of the July contract to August futures narrowed 1.6 cents to 2.4 cents.

August $3 calls, bets that prices will rise, were the most active options in electronic trading on the exchange. They fell 0.1 cent to 10.4 cents per million Btu on volume of 1,242 contracts at 3:05 p.m.

The weather will be hotter than normal in the Northeast through June 25, according to MDA EarthSat Weather in Gaithersburg, Maryland. Cooling demand in the U.S. may be 7 percent above normal on June 23, data from Weather Derivatives in Belton, Missouri, show.

The high in New York tomorrow may be 90 degrees Fahrenheit, 7 higher than the usual reading, according to the National Weather Service, which issued heat advisories from Nebraska to Ohio and from Minnesota to Texas.

Electricity producers account for about 36 percent of U.S. gas consumption, according to the Energy Department.

Exxon’s View

Current natural gas prices aren’t sustainable, Rex Tillerson, chief executive of Exxon Mobil Corp., the largest U.S. natural gas producer, said at the Council on Foreign Relations in New York today.

Energy producers are “losing our shirts” amid low gas prices, Tillerson said.

Energy Department data scheduled for release tomorrow at 10:30 a.m. in Washington may show gas inventories climbed 53 billion cubic feet in the week ended June 22, according to the median of 22 analyst estimates compiled by Bloomberg. The five-year average increase is 85 billion, department data show.

U.S. power plants produced the same amount of electricity from natural gas and coal for the first time in April as low gas prices boosted demand, a government report showed.

Each of the fossil fuels accounted for 32 percent of the 296.1 million megawatt-hours generated during the month as coal’s share declined 23 percent to a record low, the Energy Department’s Energy Information Administration said in a report today. Gas’s share rose 36 percent during the month.

Output Estimate

The department cut its forecast for natural gas output in 2012 by 1 percent in the June 12 monthly Short-Term Energy Outlook. Marketed gas production will average 68.47 billion cubic feet a day this year, down from 69.14 billion estimated in May, the department said.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $2.55 per million British thermal units, up from the previous estimate of $2.45, according to the report.

The number of rigs drilling for natural gas in the U.S. fell by 21 to 541 last week, the lowest count since August 1999, according to data released June 22 by Baker Hughes Inc. in Houston.

Gas futures volume in electronic trading on the Nymex was 511,391 as of 2:41 p.m., compared with the three-month average of 387,000. Volume was 346,068 yesterday. Open interest was 1.15 million contracts. The three-month average is 1.23 million.

The exchange has a one-business-day delay in reporting open interest and full volume data.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE