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Natural Gas Rises to 4-Week High on Below-Forecast Supply Gain

July 18 (Bloomberg) -- Natural gas futures jumped in New York to the highest price in four weeks after U.S. stockpiles climbed by less than forecast last week.

Gas gained 5 percent after the Energy Information Administration said inventories rose 58 billion cubic feet in the week ended July 12 to 2.745 trillion. Analyst estimates compiled by Bloomberg showed an injection of 65 billion. Gas has risen in four of the past five days as scorching Northeast weather boosted demand from power plants.

“The number was below expectations and we’re starting to see some intense heat in the heavy gas-consuming areas of the Northeast,” said Kent Bayazitoglu, an analyst at Gelber & Associates in Houston. “Gas demand has been going up quite a bit.”

Natural gas for August delivery surged 18.3 cents to settle at $3.812 per million British thermal units on the New York Mercantile Exchange, the highest closing price since June 20. Volume was 47 percent above the 100-day average at 2:37 p.m. Prices have gained 14 percent this year.

The discount of August to October futures narrowed 0.6 cent to 0.8 cent.

August $3.65 calls were the most active options in electronic trading. They were 11.7 cents higher at 17.7 cents per million Btu on volume of 617 at 2:51 p.m. Calls accounted for 53 percent of trading volume. Implied volatility for at-the-money options expiring in August was 30.22 percent at 2:45 p.m., compared with 30.61 percent yesterday.

Average Gain

A survey of Bloomberg users predicted a stockpile injection of 64 billion cubic feet. The stockpile increase was smaller than the five-year average gain for the week of 70 billion cubic feet, department data show. A deficit to the five-year average was 1.2 percent compared with 0.8 percent the previous week.

Supplies were 13.1 percent below year-earlier inventories, compared with 14.2 percent in last week’s report.

“The smaller build suggests a somewhat tighter background supply/demand balance that will translate into a less bearish outlook for the coming weeks,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York, in a note to clients today.

MDA Weather Services in Gaitherburg, Maryland, predicted above-normal temperatures in most of the lower-48 states from July 23 through July 27.

The high in Dallas on July 25 may be 100 degrees Fahrenheit (38 Celsius), 3 higher than average, according to AccuWeather Inc. in State College, Pennsylvania. The high in St. Louis may be 91 degrees, 2 more than usual.

Williams Pipeline

Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

Williams Cos.’ Transcontinental gas pipeline posted a notice on its website asking shippers to balance supply and demand requirements to ensure system integrity amid hot weather. The 10,200-mile system extends from Texas to New York and has a capacity of 9.7 billion cubic feet per day.

The U.S. cut its 2013 marketed natural gas production estimate to 69.96 billion cubic feet a day from a June forecast of 70.01 billion, the EIA said July 9 in in its Short-Term Energy Outlook. Output may rise 1.1 percent from 2012 to a record as onshore supplies climb.

Stockpiles may total 3.809 trillion cubic feet at the end of October, about 120 billion below last year’s peak, the EIA said.

The U.S. met 89 percent of its own energy needs in March, the highest monthly rate since April 1986, EIA data show.

To contact the reporters 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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