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Natural Gas Gains Most in Seven Weeks on Outlook for Hot Weather

June 17 (Bloomberg) -- Natural gas climbed in New York, capping the biggest gain in seven weeks, on forecasts for hotter weather in late June that would spur demand from power plants.

Gas futures surged the most since April 29 as the Northeast and parts of the Midwest may see above-normal temperatures from June 22 through June 28, according to Commodity Weather Group LLC in Bethesda, Maryland. The high in New York on June 25 may be 90 degrees Fahrenheit (32 Celsius), 8 more than usual, according to AccuWeather Inc. in State College, Pennsylvania.

“The market is taking its cues from the weather,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We’re seeing a little heat, especially in the Midwest and Northeast.”

Natural gas for July delivery jumped 14.2 cents, or 3.8 percent, to settle at $3.875 per million British thermal units on the New York Mercantile Exchange. Trading volume was 5.5 percent below the 100-day average at 2:59 p.m. Gas has risen 16 percent this year.

The discount of July to October futures narrowed 1 cent to 3.3 cents.

July $4 calls were the most active options in electronic trading. They were 2.3 cents higher at 3 cents per million Btu on volume of 840 at 3:04 p.m. Calls accounted for 49 percent of trading volume. Implied volatility for at-the-money options expiring in July was 29.45 percent at 3 p.m., compared with 27.59 percent on June 14.

CFTC Report

Money managers’ net-long wagers on four U.S. natural gas contracts declined by 46,715 futures equivalents, or 11 percent, to 365,737 in the week ended June 11, the Commodity Futures Trading Commission said June 14. It was the lowest level since the week ended March 19.

The forward U.S. natural gas price curve is “underestimating demand beyond 2016,” as industrial needs increase, coal-fired power plants retire and LNG shipments and exports to Mexico drive fuel use higher, J. Marshall Adkins, an analyst with Raymond James in Houston, said in a note to clients today.

“Don’t rule out the possibility of a short-lived gas price spike in 2015/2016 if surging demand temporarily outpaces the industry’s ability to bring new supply online,” Adkins said.

The high in St. Louis on June 23 may be 92 degrees Fahrenheit, 5 more than usual, AccuWeather said. Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

U.S. Production

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.

Inventories of the fuel totaled 2.347 trillion cubic feet in the week ended June 7, 2.4 percent below the five-year average and 20 percent less than last year’s total for the period.

The number of rigs drilling for gas fell by one to 353 last week, data from Baker Hughes Inc. in Houston showed on June 14. The total is down 18 percent this year.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.92 per million British thermal units this year, up from the May estimate of $3.80, the EIA said June 11 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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