Natural Gas Caps Third Weekly Gain on Outlook for Inventories

Natural gas futures capped a third weekly gain on speculation that stockpiles will fall short of capacity before lower temperatures boost demand for heating.

Gas climbed 0.2 percent. An Energy Department report yesterday showed inventories expanded by 72 billion cubic feet in the week ended Oct. 5 to 3.725 trillion, below analyst estimates of a 78 billion gain. Supplies may total 3.903 trillion cubic feet by Oct. 31, below estimated capacity of 4.239 trillion.

“The injection number yesterday was a little lighter than expected,” said Tom Saal, senior vice president of energy trading at INTL Hencorp Futures LLC in Miami. “We’re putting gas into storage at levels below analysts’ predictions. That’s still the bullish case for this market.”

Natural gas for November delivery rose 0.7 cent to settle at $3.611 per million British thermal units on the New York Mercantile Exchange. The futures gained 6.3 percent this week and are up 3.5 percent from a year ago. The settlement price was the highest since Dec. 1.

December $4.60 calls were the most active gas options in electronic trading. They were 0.4 cent lower at 1.7 cents on volume of 950 contracts as of 2:35 p.m. Calls accounted for 59 percent of options volume.

The number of rigs drilling for natural gas in the U.S. fell by 15 to 422 this week, the lowest level since June 1999, according to data released today by Baker Hughes Inc. in Houston. The rig count has dropped 48 percent this year.

Normal Winter

The winter of 2012-2013 will probably increase the use of heating fuels compared with last year and leave above-normal snowfall from Massachusetts to Alabama, AccuWeather Inc. said.

The coldest part of the winter will probably be in February, with slightly warmer than average weather in December that may bring the entire season near normal, said Paul Pastelok, long-range forecaster for AccuWeather in State College, Pennsylvania.

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. About 50 percent of U.S. households use gas for heating, according to the Energy Department.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 83 percent of its energy needs in the first six months of the year, department data show. If the trend goes on through 2012, it will be the highest level of self-sufficiency since 1991.

Goldman Recommendation

Goldman Sachs Group Inc. said investors who bought U.S. natural gas for summer 2013 on its advice in April should sell now to make a 20 percent profit.

Goldman closed its recommendation to buy the futures after they exceeded its price target of $4 per million British thermal units, according to an e-mailed report dated yesterday. Prices on the New York Mercantile Exchange were at $3.36 when the bank suggested investors buy, Goldman said.

The amount of gas that utilities burn in place of coal in 2013 will be “substantially” reduced as lower drilling activity this year and increased winter heating demand after a mild 2011-12 season erode supply, Goldman said.

U.S. power plants are switching to gas at an unprecedented rate, supporting prices that are poised for a third straight quarter of gains.

“We expected that natural gas prices would likely remain depressed for much of the summer of 2012 in order to motivate sufficient coal-to-gas substitution,” David Greely, a New York-based analyst at Goldman, said in the report. “We anticipated that these low prices would also drive a number of additional tightening shifts in the supply-demand balance.”

Gas futures volume in electronic trading on the Nymex was 338,755 as of 2:42 p.m., compared with the three-month average of 391,000. Volume was 792,388 yesterday. Open interest was 1.2 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.

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