Natural Gas Futures Gain on Forecasts for Colder Midwest Weather

Natural gas futures climbed in New York for the second time in three days on forecasts of a chill in the Midwest that would boost demand for the heating fuel.

Gas gained 2.4 percent after MDA Weather Services predicted below-normal temperatures in parts of the central U.S. from Feb. 18 through Feb. 22. Yesterday’s outlook had shown mostly normal readings in the region. The low in Minneapolis on Feb. 20 may be 6 degrees Fahrenheit (minus 14 Celsius), 9 lower than usual, according to AccuWeather Inc.

“We’re still technically in winter and the market is reacting to the weather forecasts,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami. “Prices are trying to rally a little bit in response to the cold.”

Natural gas for March delivery rose 7.6 cents to settle at $3.306 per million British thermal units on the New York Mercantile Exchange. Prices were up 36 percent from a year ago. Trading was 26 percent above the 100-day average at 2:43 p.m.

March $3.45 calls were the most active gas options in electronic trading. They were 0.9 cent higher at 2.4 cents per million Btu on volume of 714 contracts as of 3:36 p.m. Calls accounted for 57 percent of options volume.

The low in St. Louis on Feb. 20 may be 23 degrees Fahrenheit, 5 less than usual, according to AccuWeather in State College, Pennsylvania.

A midday update to the National Weather Service’s Global Forecast Model showed below-normal temperatures in the eastern half of the U.S. from Feb. 23 through Feb. 27. An earlier forecast had shown normal weather during the period.

About 50 percent of U.S. households use gas for heating, data from the Energy Information Administration show. The agency is part of the Energy Department.

Stockpile Estimates

Analysts predict that a weekly government report will show a bigger-than-normal withdrawal from U.S. gas inventories. The EIA’s weekly storage data, due at 10:30 a.m. tomorrow in Washington, may show that stockpiles fell 166 billion cubic feet in the week ended Feb. 8, according to the median of 20 estimates compiled by Bloomberg.

The five-year average drop for the week is 154 billion, EIA data show. Supplies fell 113 billion in the same week last year.

Gas inventories totaled 2.684 trillion cubic feet in the week ended Feb. 1, 15 percent above the five-year average and 7.8 percent below last year’s stockpiles for the period. The supply surplus to the five-year norm has climbed from 11 percent over the past three report periods.

Marketed gas production will average a record 70.02 billion cubic feet a day this year, up 1.1 percent from 2012, the Energy Information Administration said yesterday in its monthly Short-Term Energy Outlook.

Shale Gas

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.53 per million Btu in 2013, the agency said. Prices averaged $2.75 last year.

“Production in the Marcellus Shale areas of Pennsylvania and West Virginia is expected to continue rising as recently drilled wells become operational” the EIA said in the report.

Gas stockpiles may total 2.0 trillion cubic feet at the end of March, down from 2.477 trillion at the same time last year, according to the report.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. America met 84 percent of its energy needs in the first 10 months of last year, government data show. If the trend lasted through 2012, it would be the highest level of self-sufficiency since 1991.

EON SE will start a U.S. power and natural-gas trading operation as Germany’s largest utility seeks to profit from North America’s shale-gas revolution.

The company, which already trades U.S. power and gas derivatives from Germany, will hire five traders in Chicago, executives at EON said. The group will trade physical power and gas, may lease pipeline and storage capacity and is looking to secure liquefied natural gas capacity from the U.S., they said.

Before it's here, it's on the Bloomberg Terminal.