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Natural Gas Rebounds From 3-Month Low on Hot Weather Outlook

June 12 (Bloomberg) -- Natural gas futures climbed in New York, rebounding from a three-month low, on forecasts of warmer-than-average weather that would increase demand for the power generation fuel.

Gas gained 1.4 percent as temperatures may be above normal in the southern and central U.S. through June 21, according to MDA Weather Services in Gaithersburg, Maryland. The high in Dallas on June 15 may be 98 degrees Fahrenheit (37 Celsius), 6 more than usual, according to AccuWeather Inc. in State College, Pennsylvania.

“We’re getting a little bit of an early taste of summer,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “Prices were hit pretty hard over the past few days and now the weather forecasts are looking supportive.”

Natural gas for July delivery rose 5.3 cents to settle at $3.777 per million British thermal units on the New York Mercantile Exchange. Trading volume was 0.9 percent above the 100-day average at 2:48 p.m. The futures dropped to $3.724 yesterday, the lowest settlement price since March 13. Gas has climbed 13 percent this year.

The discount of July to October futures widened 0.1 cent to 3.9 cents.

July $3.50 puts were the most active options in electronic trading. They were 0.7 cent lower at 1.4 cents per million Btu on volume of 578 at 3:24 p.m. Puts accounted for 53 percent of trading volume. Implied volatility for at-the-money options expiring in July was 32.16 percent at 3:15 p.m., compared with 31.79 percent yesterday.

New Orleans

The high in New Orleans on June 15 may be 95 degrees, 6 more than usual, AccuWeather predicted. Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

Government data scheduled for release at 10:30 a.m. tomorrow in Washington may show that inventories rose 95 billion cubic feet in the seven days ended June 7, according to the median of 18 analyst estimates compiled by Bloomberg. The five-year average gain for the week is 84 billion. Supplies rose 66 billion the same week last year.

Higher gas prices through July will keep storage injections “much above last year’s level and lead to another and steeper price correction in August and September, down to $3.50” per million Btu, Michael Haigh, head of commodities research at Societe Generale in New York, said in a note to clients today.

Bullish Inventories

Lower prices will spur demand from electricity generators and cap inventory levels at 3.7 trillion cubic feet this year, Haigh said. This inventory level would be bullish and winter gas prices above $5 “are not out of the question,” he said.

The bank raised its forecast for the average 2013 natural gas price 4.9 percent to $3.87 per million Btu from $3.69 and lowered its outlook for 2014 prices to $4.36 from $4.54.

Inventories totaled 2.252 trillion cubic feet in the week ended May 31, 3 percent below the five-year average and 22 percent below last year’s level for the period.

“Stronger-than-expected injections recently, either driven by year-on-year growth in production or weaker-than-expected demand and volatile May weather, suggest upside risk to our end-of-summer storage forecast of around 3.65” trillion cubic feet, Jeffrey Currie, an analyst at Goldman Sachs Group Inc. in New York, said in a note to clients today.

Gross gas output in the lower 48 states dropped 0.7 percent to 72.71 billion cubic feet a day in March from a month earlier, the EIA said May 31 in its monthly EIA-914 production report. Louisiana had the largest decrease at 4.5 percent as operators reported shut-ins for maintenance.

Prices for the fuel at the benchmark Henry Hub in Erath, Louisiana, will average $3.92 per million Btu this year, up from a May estimate of $3.80, the EIA said yesterday in its monthly Short-Term Energy Outlook. The average for third quarter was raised 7.4 percent to $4.05 from $3.77.

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

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