Natural Gas Futures Advance as Weather Forecasts Turn Colder

Dec. 18 (Bloomberg) -- Natural gas futures advanced for a second day in New York on forecasts for colder-than-normal weather that would boost demand for the heating fuel.

Gas gained 1.8 percent after Commodity Weather Group LLC in Bethesda, Maryland, predicted below-average temperatures in parts of the Midwest from Dec. 23 through Dec. 27, followed by cooler weather in most of the lower 48 states the next week. Earlier outlooks showed mostly seasonal or above-normal temperatures through Dec. 27.

“The weather forecast has shifted quite a bit colder and that’s what has given the market a boost,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It’s a pretty significant change in the temperature outlook.”

Natural gas for January delivery rose 6 cents to settle at $3.418 per million British thermal units on the New York Mercantile Exchange. The futures are up 14 percent this year, heading for the first annual gain since 2007.

January $3.60 calls were the most active gas options in electronic trading. They were 0.4 cent higher at 1.8 cents per million Btu on volume of 1,084 contracts as of 3:02 p.m. Calls accounted for 55 percent of options volume.

Temperature Outlook

The low in Chicago on Dec. 31 may be 15 degrees Fahrenheit (minus 9 Celsius), 4 below than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. The low in New York may be 25 degrees, 3 lower than normal.

About 50 percent of U.S. households use gas for heating, Energy Department data show.

“The market had priced in continued mild weather through the entirety of winter and now prices are recovering to reflect the possibility of more heating demand,” Aaron Calder, an analyst at Gelber & Associates in Houston, said in a note to clients today.

A department report scheduled for release Dec. 20 will show gas inventories fell by 74 billion cubic feet last week to 3.732 trillion, according to the median of six analyst estimates compiled by Bloomberg. The five-year average withdrawal for the period is 144 billion.

Stockpiles rose 2 billion cubic feet in the week ended Dec. 7 to 3.806 trillion cubic feet, a government report showed Dec. 13. It was the latest seasonal supply gain since Dec. 30, 2005, according to department data compiled by Bloomberg.

Surplus Averages

Supplies were 8 percent above the five-year average, compared with 4.6 percent the previous week. The gas inventory surplus to the average has declined from a six-year high of 61 percent in March, department data show.

The U.S. raised its forecast for natural gas output in 2012 by 0.6 percent in a report Dec. 11 and boosted its outlook for prices.

Marketed gas production will average 69.22 billion cubic feet a day this year, up from 68.84 billion estimated in November, the Energy Department said in its monthly Short-Term Energy Outlook. Output may rise 0.5 percent in 2013 to 69.59 billion a day, department estimates show.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $2.78 per million British thermal units, compared with the previous estimate of $2.77, according to the report from the department’s Energy Information Administration.

Energy Independence

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 eight 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.

The number of rigs drilling for gas in the U.S. slipped by one to 416 last week, according to data from Baker Hughes Inc. in Houston. The rig count is down 49 percent this year.

Gas futures volume in electronic trading on the Nymex was 290,202 as of 2:43 p.m., compared with the three-month average of 364,000. Volume was 364,302 yesterday. Open interest was 1.16 million contracts, matching the three-month average.

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

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net;

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net