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Natural Gas Climbs to 2-Week High on Outlook for Cooling Demand

Natural gas futures advanced to a two-week high in New York on forecasts for hotter-than-normal weather that would increase air conditioner use and boost demand for the power-plant fuel.

Gas climbed 1.5 percent after MDA Weather Services in Gaithersburg, Maryland, predicted higher-than-average temperatures across most of the lower 48 states from June 24 through July 3. The high in New York on June 28 may be 89 degrees Fahrenheit (32 Celsius), 7 more than usual, according to AccuWeather Inc. in State College, Pennsylvania.

“The forecasts are definitely looking hotter,” said Victor Zevallos, an energy trader at FCStone Latin America LLC in Miami. “We’re going to see some air conditioning demand kicking in and that’s sending prices higher.”

Natural gas for July delivery rose 5.8 cents to settle at $3.963 per million British thermal units on the New York Mercantile Exchange. Prices have climbed 18 percent this year. Trading was 31 percent below the 100-day average at 2:45 p.m.

The discount of July to October futures narrowed 0.4 cent to 2.5 cents.

July $4 calls were the most active options in electronic trading. They were 0.8 cent higher at 3.6 cents per million Btu on volume of 2,007 at 2:56 p.m. Calls accounted for 51 percent of trading volume. Implied volatility for at-the-money options expiring in August was 29.56 percent at 2:45 p.m., compared with 29.9 percent yesterday.

Chicago Heat

The high in Chicago on June 27 may be 93 degrees Fahrenheit, 10 more than average, 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.

“Whether or not the potential cooling-related natural gas demand will be significant enough to have a strong impact on the weekly inventory injections is the big question,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients today.

A report due tomorrow from the Energy Department’s Energy Information Administration may show that gas stockpiles rose 88 billion cubic feet in the seven days ended June 14, according to the median of 21 analyst estimates compiled by Bloomberg. The five-year average change is an increase of 80 billion for the period. Supplies climbed 63 billion in the same week last year.

Gas Supplies

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 a year earlier.

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.

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 has dropped 18 percent this year.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.92 per million British thermal units in 2013, up from $2.75 last year, the EIA said June 11 in its monthly Short-Term Energy Outlook.

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