Natural gas futures advanced for the seventh time in eight days as an expected blast of cold air signaled stronger demand for heating fuel.
Gas gained 0.3 percent as the National Weather Service predicted below-normal temperatures for most of the lower 48 states over the next six to 10 days. Prices retreated from steeper gains after the Energy Department said supplies rose 77 billion cubic feet last week, above the median of 26 analyst forecasts showing an increase of 73 billion.
“It’s a shoving match between the bulls and the bears,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “This is a seasonal play as supply is secured for the winter and speculators look to make end users pay up for it. You have so much supply in the ground so people are really bearish on the market rallies.”
Natural gas for November delivery gained 1.1 cents to settle at $3.406 per million British thermal units on the New York Mercantile Exchange after rising as high as $3.464. The futures have climbed 14 percent this year.
November $3 puts, bets that prices will fall, were the most active gas options in electronic trading. They fell 0.7 cent to 1.7 cents on volume of 1,411 contracts as of 2:40 p.m. Puts accounted for 63 percent of options volume.
The discount for November futures widened to 0.6 cent versus December contracts from yesterday to 27.4 cents.
The low temperature in Detroit on Oct. 12 may be 37 degrees Fahrenheit (3 Celsius), 9 below normal, and New York City may drop 8 below the usual reading to 43 degrees, according to AccuWeather Inc. in State College, Pennsylvania.
Heating demand in the continental U.S. may be 16 percent above normal Oct. 10 through Oct. 14, data from Weather Derivatives in Belton, Missouri, show.
Gas consumption typically slumps following air-conditioner use in the summer and before the winter heating season.
“Any further run-up in futures prices may eventually give way to a correction in absence of a complete recovery in heating demand,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients today. She sees “elevated” supplies this winter as more production is brought online.
The Pacific Ocean persists in flirting with an El Nino, leaving researchers waiting as they have for months for the phenomenon to develop.
There’s a possibility a warming of the central Pacific that can disrupt weather patterns around the world may gain strength during the next four months, according to the U.S. Climate Prediction Center. The College Park, Maryland-based forecast maintained its “El Nino Watch,” though it said time may be running out.
“The implication behind it is there is a correlation between a weak El Nino and a winter colder and snowier than normal,” in places such as the Northeast, said David Tolleris, a meteorologist at WXRisk.com in Richmond, Virginia.
The Energy Department today reported that gas inventories increased to 3.653 trillion cubic feet in the week ended Sept. 28. The five-year average gain for the week is 78 billion.
A supply surplus to the five-year average fell to 8.3 percent for the week, down from 8.6 percent the previous week. The gap has narrowed from a six-year high of 61 percent at the end of March. Power plants have been burning a record amount of gas as they switched from costlier coal.
The department predicted that stockpiles may rise to a record of 3.95 trillion cubic feet by the end of October, before the peak heating demand season begins, according to its monthly Short-Term Energy Outlook on Sept. 11.
The Natural Gas Supply Association’s 2012-2013 winter outlook, released yesterday, predicted that prices rise from last winter’s average of $2.75 from November through March at the Henry Hub in Erath, Louisiana, the delivery point for New York futures.
Gas prices will see “soft upward pressure” as higher demand from colder weather this winter will be “easily matched by ample production and gas in storage,” Greg Vesey, vice chairman of the Washington-based association and president of Chevron Natural Gas, a unit of Chevron Corp., said in the outlook.
Gas futures volume in electronic trading on the Nymex was 358,438 as of 2:43 p.m., compared with the three-month average of 379,000. Volume was 398,729 yesterday. Open interest was 1.16 million contracts. The three-month average is 1.11 million.
The exchange has a one-business-day delay in reporting full volume and open interest data.