Natural gas futures advanced as forecasts for unusually hot weather signaled increased demand for the power-plant fuel, limiting supply gains.
Mild weather in the Northeast, mid-Atlantic and Midwest this week will give way to above-normal temperatures Aug. 15 through Aug. 24, said MDA Weather Services. Manhattan’s high Tuesday may be 80 degrees Fahrenheit (27 Celsius), 3 below normal, before jumping eight days later to 90, AccuWeather Inc. said on its website.
A government report last week showed the smallest gain in gas storage levels in almost four months after a surge of heat in the biggest gas-consuming regions of the U.S. More hot weather ahead is limiting concerns about ending the stockpiling season with a burgeoning surplus.
“The forecasts are back for more above-normal temperatures in mostly gas-consuming regions and the market is reacting accordingly,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “If we continue to get these below-average storage injections, that provides a little bit of stimulus here in the prices.”
Natural gas for September delivery rose 4.4 cents, or 1.6 percent, to settle at $2.842 per million British thermal units on the New York Mercantile Exchange. Volume for all futures traded was 9.6 percent above the 100-day average at 2:53 p.m.
The government’s midday Global Forecast System turned hotter in the six- to 10-day outlook with the entire East Coast seeing readings a few degrees above normal, said Jim Southard, meteorologist with Frontier Weather Inc. in Tulsa, Oklahoma.
“Later next week, the new GFS has the Northeast and Mid-Atlantic turning cooler than normal, though the Southeast would stay a little warmer than normal into next weekend,” Southard said.
The pace of storage gain slowed in mid-July as hotter weather boosted demand for the fuel to run air conditioners.
Gas inventories rose by 32 billion cubic feet to 2.912 trillion in the week ended July 31, the lowest storage injection since the start of April, U.S. Energy Information Administration data show.
Supplies probably expanded by another 48 billion last week, in line with the five-year average, Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in a note to clients.
Gas production from the seven largest U.S. shale deposits will fall in September for the fourth consecutive month in the longest streak of declines in EIA data going back to 2007. Shale output will fall 0.6 percent to 44.9 billion cubic feet a day next month with the biggest volume declines from the oil-rich Eagle Ford deposit in Texas and the Marcellus gas field in the East, the EIA said in its Drilling Productivity Report.
Speculators reduced net-short positions, or bearish bets, on four gas contracts by 8.2 percent to 35,564 futures equivalents in the week ended Aug. 4, a 10-week low, U.S. Commodity Futures Tradition Commission data show.
“The natural gas market is considering the upside in Monday trade, supported by enough warmer-than-normal temperatures in the forecast to limit storage injections over the next few weeks to five-year average, or moderately below-average, levels,” said Evans.
“Although the market has been reluctant to credit this as a stronger-than-expected result, we continue to see some potential for a rally back above the $3.00 mark in the weeks ahead,” he said.