Natural Gas Futures Advance on Forecasts of Cooler Weather

Natural gas futures gained in New York for the first time in four days on forecasts of colder-than-normal weather that may increase demand for the heating fuel.

Gas gained as much as 2.7 percent after Commodity Weather Group LLC in Bethesda, Maryland, predicted below-normal temperatures in parts of the eastern U.S. through Nov. 7. Heating demand in the Northeast may be 7 percent above normal from Nov. 4 through Nov. 8, according to Weather Derivatives. Nymex floor trading is shut today because of Hurricane Sandy.

“Mother Nature and the possibility of a cold winter is all this market has to go on,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “We could see some upward momentum as the November contract expires today.”

Natural gas for November delivery rose 8.6 cents, or 2.5 percent, to $3.486 per million British thermal units at 1:26 p.m. on the New York Mercantile Exchange. The futures are up 17 percent this year.

The November contract expires today. The more actively-traded December contract was 11.3 cents higher, or 3 percent, at $3.837 per million Btu.

Gas volume on the exchange was 193,611 contracts at 2:02 p.m. The three-month average volume is 393,000.

January $5 calls were the most active options on the exchange, trading 0.5 cent higher at 1.8 cents on volume of 905 lots at 1:40 p.m.

The low in New York on Nov. 7 may be 41 degrees Fahrenheit (5 Celsius), 3 below normal, according to AccuWeather Inc. in State College, Pennsylvania. The low in Boston may be 35 degrees, 5 less than the usual reading.

Winter Outlook

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

The coming U.S. winter will probably be cooler than a year ago, boosting demand for heating fuels such as natural gas, a panel of forecasters said.

While December will be warmer than normal, temperatures will drop through February, increasing natural gas use by 13 percent over the same period from last year, Commodity Weather Group LLC President Matt Rogers said during a panel discussion at Earth Networks Inc.’s seventh annual energy weather seminar in New York Oct. 18.

The U.S. winter, measured by meteorologists from Dec. 1 to Feb. 28, may be 21 percent cooler than last year in terms of natural gas-weighted heating degree days, Rogers said.

Raymond James Financial Inc. raised its 2012 U.S. natural gas price forecast by 7.2 percent, citing tighter supply and higher demand going into winter.

Price Forecast

Raymond James bolstered its view for the average gas price at the Henry Hub in Erath, Louisiana, to $2.82 per thousand cubic feet ($2.75 per million Btu) from $2.63, J. Marshall Adkins, an analyst at the company in Houston, said in a note to clients today. The Henry Hub is the delivery point for gas futures on the New York Mercantile Exchange.

Gas is projected to average $3.75 in 2013, up 15 percent from the previous forecast of $3.25, according to the note. “Our gas model shows that, if the weather is anywhere near normal, supply-demand should tighten sharply this winter before loosening up next summer,” Adkins said. Net-long bets on four natural gas contracts rose for a fourth week, increasing 3.9 percent to 176,754 in the week ended Oct. 23, according to Commodity Futures Trading Commission data released Oct. 26. The gain left bullish wagers at the highest levels since Aug. 7.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps.

Hurricane Sandy

Hurricane Sandy may result in widespread power failures along the East Coast, cutting gas consumption, Price Futures Group’s Flynn said. Sandy was about 260 miles (415 kilometers) southeast of New York City as of 11 a.m. local time with maximum sustained winds of 90 miles per hour, according to the National Hurricane Center.

Gas inventories totaled 3.843 trillion cubic feet in the week ended Oct. 19, 7 percent above the five-year average. The surplus to the average is down from 61 percent on March 30. Stockpiles may reach 3.903 trillion by Oct. 31, below estimated capacity of 4.239 trillion, Energy Department data show.

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.

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