Natural Gas Advances for Second Day as Midwestern Cold Persists

Natural gas futures gained for a second day in New York on forecasts for colder-than-normal Midwestern weather that would stoke demand for the heating fuel and increase a supply deficit.

Gas advanced 1.3 percent after Commodity Weather Group LLC in Bethesda, Maryland, predicted below-normal temperatures in the central U.S. through April 26. A government report tomorrow may show a smaller-than-average increase in stockpiles for last week, according to analyst estimates.

“The colder forecasts are definitely supporting prices,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “This is really weird weather for this time of year. The inventory situation is also very supportive to the market.”

Natural gas for May delivery rose 5.4 cents to settle at $4.214 million British thermal units on the New York Mercantile Exchange. The futures have gained 26 percent this year. Trading volume was 17 percent below the 100-day average at 3:27 p.m. Prices reached $4.29 per million Btu in intraday trading April 15, the highest level since July 28, 2011.

The discount of May contracts to October widened 0.8 cent to 10.3 cents. The discount of October to January expanded 0.4 cent to 30.3 cents.

June $5 calls were the most active gas options in electronic trading. They rose 0.5 cent to 2 cents per million Btu on volume of 760 contracts as of 3:34 p.m. Calls accounted for 56 percent of options volume.

Options Volatility

Implied volatility for at-the-money gas options expiring in May was 35.69 percent at 3:30 p.m., up from 34.67 percent yesterday. June options volatility was 32.08 percent, up from 31.64 percent.

The low in Chicago on April 20 may be 33 degrees Fahrenheit (1 Celsius), 10 lower than the usual reading, according to AccuWeather Inc. in State College, Pennsylvania. The low in Minneapolis may be 29 degrees, 10 below average.

About 50 percent of U.S. households use gas for heating, according to the Energy Information Administration, the statistical arm of the Energy Department.

Gas inventories rose 35 billion cubic feet in the week ended April 12, the first injection of the season, according to the median of 15 analyst estimates compiled by Bloomberg. The five-year average change for the period is an increase of 39 billion.

Stockpiles totaled 1.673 trillion cubic feet as of April 5, 3.8 percent below the five-year average, EIA data show. Supplies were a record 32.5 percent below year-earlier levels.

Demand Outlook

If demand for natural gas vehicles grows in developed markets, gasoline and diesel demand may be cut by 1.5 million to 4.5 million barrels a day, Martijn Rats, an analyst at Morgan Stanley in London, said in a note to clients today.

“With compelling economics for many vehicle owners and a large number of industry initiatives in place to stimulate takeup of natural gas, we foresee further growth in the global NGV fleet, despite some of the obstacles,” Rats said.

The EIA lowered its forecast for natural gas output in 2013 by 0.4 percent and raised its outlook for prices in a report released April 9.

Marketed gas production will average a record 69.33 billion cubic feet a day this year, down from 69.6 billion estimated in March, the EIA said in its monthly Short-Term Energy Outlook. Output may rise 0.3 percent from the 2012 total.

Gas prices at the benchmark Henry Hub in Erath, Louisiana, will average $3.52 per million British thermal units, higher than the previous estimate of $3.41, according to the report. Gas averaged $2.75 per million Btu last year.

The boom in oil and natural gas production helped the U.S. cut its reliance on imported fuel. The U.S. produced 84 percent of its own energy in 2012, the most since 1991, EIA data show. The measure of self-sufficiency rose to 88 percent in December, the highest since February 1987.

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