Natural Gas Advances on Outlook for Hot Weather Driving Demand

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Natural gas futures reached the highest in four days amid speculation that above-average temperatures will spur demand from power plants to run air conditioners.

The mid-Atlantic and Texas, the top gas-consuming state, may see higher-than-normal temperatures July 26 through August 4, MDA Weather Services said.

The high in Dallas on July 27 was forecast to be 102 degrees Fahrenheit (39 Celsius), 5 above normal, according to AccuWeather Inc. Air conditioning accounts for 6 percent of an average household’s energy use, according to the U.S. Energy Department.

“Elevated temperatures are spawning a run on natural gas,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “You have seasonable to above-seasonable temperatures over the next 10 days.”

Natural gas for August delivery gained 5.9 cents, or 2.1 percent, to settle at $2.882 per million British thermal units on the New York Mercantile Exchange, the most since July 15. Prices have climbed 12 percent over the past three months. Volume for all futures traded was 24 percent below the 100-day average.

“It was one of the better performing commodities in any commodity index you have,” Yawger said. “Natural gas continues to be attractive.”

Average gas deliveries to power plants in July have climbed 21 percent from the same period a year ago to reach 31.9 billion cubic feet a day, according to LCI Energy Insight in El Paso, Texas.

Power generators will account for 33 percent of gas consumption in 2015, up from 30 percent in 2014, the U.S. Energy Information Administration said in its Short-Term Energy Outlook on July 7.

Summer Heatwave

“The U.S. natural gas market has reversed Monday’s sell-off as traders take another look at the summer heatwave underway,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients.

Higher gas prices could stem from a decline in bearish bets or a drop in gas flows to inventories after prior weeks saw supplies near 100 billion cubic feet, Aaron Calder, senior market analyst at Gelber & Associates in Houston, said in a client note.

Government data scheduled for release Thursday may show gas inventories rose by 74 billion cubic feet last week, based on the median of 6 analyst estimates compiled by Bloomberg. That’s compared with the five-year average change of 53 billion for the period and a gain of 92 billion in the same week last year.

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