Natural gas futures posted the biggest one-day gain in three weeks in New York on speculation that hotter weather may spur demand for the power-plant fuel.
Gas rose 3.4 percent, the most since June 17, as forecasts showed above-normal temperatures from the Northeast into Central and Western states through July 22, said MDA Weather Services in Gaithersburg, Maryland. Gas prices are down 16 percent from a 21-month high of $4.444 on May 1 as stockpile gains topped five-year averages for five straight weeks amid mild weather.
“We see the 11- to 15-day forecast keeping the heat in place for most of July,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “It really is a weather-driven story with the expectation that the rise in air-conditioning demand will bring the weekly storage injections back in line with the five-year average levels.”
Natural gas for August delivery increased 12.4 cents to $3.741 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since June 21. Trading volume was 30 percent below the 100-day at 2:38 p.m. Prices have climbed 12 percent this year.
“Last week, the market stopped its downward trend, it held support in the $3.50-$3.60 area,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami.
Billionaire investor T. Boone Pickens, chairman and chief executive officer of BP Capital LLC in Dallas, said in an interview with CNBC that gas may reach $4.50 in a mild winter while a cold winter may boost prices to $5.
The discount of August to October futures narrowed 0.5 cent to 1.2 cents.
August $3.50 puts were the most active options in electronic trading. They were 3.1 cents lower at 2.4 cents per million Btu on volume of 1,079 at 3:22 p.m. Puts accounted for 65 percent of trading volume. Implied volatility for at-the-money options expiring in August was 30.55 percent at 3 p.m. compared with 29.85 percent on July 5.
The high temperature in Dallas on July 12 may be 103 degrees Fahrenheit (39 Celsius), 7 above normal, said AccuWeather Inc. in State College, Pennsylvania. Washington may reach 99 degrees, 10 above normal, on July 19 and three days later Chicago may climb to 93 degrees, 9 above average.
Tropical Storm Chantal, about 470 miles (760 kilometers) east-southeast of Barbados with maximum wind speeds of 45 miles per hour, is expected to strengthen over the next 48 hours, the National Hurricane Center said at 2 p.m. East Coast time.
It appears the system will steer clear of rigs and platforms in the Gulf of Mexico “and will likely just keep the Southeast cooler than normal,” Viswanath said. Should the storm move toward Texas, causing electric power demand to drop, gas prices would move lower again, she 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. inventories expanded by 72 billion cubic feet in the week ended June 28 to 2.605 trillion, above the five-year average gain of 71 billion, the EIA said on July 3. A deficit to the five-year average narrowed to 1.1 percent from 1.2 percent the previous week. Supplies were 15.9 percent below year-earlier levels, compared with 17.1 percent a week earlier.
“We believe these larger injection levels reflect stronger-than-expected production growth, in part because of de-bottlenecking in the Marcellus shale,” Damien Courvalin, an analyst with Goldman Sachs Group Inc. in New York, said in a note to clients yesterday.
The bank cut its gas price forecast for the third quarter to $3.85 per million Btu and for the fourth quarter to $4.25 from the previous projection of $4.50 for the second half of 2013, he said.
The EIA estimates that marketed production, which doesn’t include amounts flared or used to pressure wells, will expand 1.2 percent this year to average a record 70.01 billion cubic feet a day, the agency said in its June 11 Short-Term Energy Outlook. Output will gain for the sixth consecutive year because of new wells at the Marcellus shale deposit in the Northeast, the government said.