Natural gas futures gained for a sixth day in New York, rising to a 10-month high, on speculation that cold weather next week will boost demand for heating fuels.
Gas rose 1.5 percent as Commodity Weather Group LLC in Bethesda, Maryland, predicted below-normal temperatures in the Northeast and Midwest over the next six to 15 days. Gas broke resistance of $3.40 per million British thermal units yesterday, finding support there, said Chris Kostas, senior gas analyst for Energy Security Analysis Inc. in Andover, Massachusetts.
“The market is building up a little enthusiasm,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “There is a lot of cold weather coming in the next couple of weeks.”
Natural gas for November delivery rose 5.1 cents to $3.531 per million Btu on the Nymex, the highest settlement price since Dec. 2. The futures are up 18 percent this year.
November $3.75 calls, bets that prices will rise, were the most active gas options in electronic trading. They rose 1.4 cents to 6.6 cents on volume of 1,913 contracts as of 2:20 p.m. Calls accounted for 61 percent of options volume.
The low temperature in Chicago on Oct. 12 may be 39 degrees Fahrenheit (4 Celsius), 8 below normal, and New York City may be 7 below normal at 44 degrees, according to AccuWeather Inc. in State College, Pennsylvania. Heating demand in the lower 48 states may be 60 percent above normal Oct. 8 through Oct. 12, data show from Weather Derivatives in Belton, Missouri.
The heating season from November through March is the peak demand period for U.S. gas consumption. Last winter was the fourth-warmest on record in the lower 48 states, which cut demand for the fuel.
MDA Earthsat Weather in Gaithersburg, Maryland, said continental U.S. temperatures from December through February, the peak heating season, will probably be above the 10-year and 30-year ranges.
“The plus-$3.50 level, without any real heating demand, is going to be unsustainable,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “As prices rise, the attractiveness of coal-to-gas switching, which has been a main driver of our rally this summer, starts to fall off.”
Power plants have been “more responsive to changes in relative fossil-fuel prices” in the last few quarters than in past years, The Energy Department said in its Sept. 11 Short-Term Energy Outlook. Power plants account for 36 percent of U.S. gas consumption.
Generators may consume 25.21 billion cubic feet a day of gas this year, up 21 percent from 2011, before demand slumps 8.4 percent in 2013 as gas prices rise, according to the outlook. Gas at the Henry Hub in Erath, Louisiana, the delivery point for New York futures, exceeded the average spot price for Central Appalachian coal in June for the first time since October 2011, according to the department.
U.S. inventories ended the week of Sept. 21 at 3.576 trillion cubic feet, 8.6 percent above the five-year average for the period, a department report showed last week. The surplus was down from 61 percent at the end of March.
Production in the lower 48 states has increased as drilling techniques such as hydraulic fracturing, or fracking, made it economic to tap vast reserves locked in shale formations deep underground.
Total U.S. production will gain 4 percent this year to average 68.86 billion cubic feet a day from last year’s record of 66.22 billion, the department estimated.
A technical indicator that measures the magnitude of price gains relative to declines is showing that gas may be overbought. The relative strength index, or RSI, was 72.7 today, after rising yesterday to 73.3, the highest since March 2008. A number above 70 is watched by traders for a move below that level, which can be considered a sell signal, Kostas said. “It’s an indication that the surge in buying has eased.”
A settlement above $3.40 for a second day may indicate gas “might be in the process of breaking out to the upside,” he said.
Gas futures volume in electronic trading on the Nymex was 426,823 as of 2:36 p.m., compared with the three-month average of 375,000. Volume was 561,798 yesterday. Open interest was 1.106 million contracts. The three-month average is 1.105 million.
The exchange has a one-business-day delay in reporting full volume and open interest data.
----With assistance from Brian K. Sullivan in Boston. Editors: Bill Banker, Richard Stubbe