Natural Gas Futures Rise for Second Day on Warm-Weather Outlook

Natural gas futures rose for a second day in New York as forecasts called for above-normal temperatures in the Northeast and Midwest that may boost demand from power plants.

Futures advanced 0.8 percent as hot weather will spread across the northern U.S. from June 23 to June 27, according to Commodity Weather Group LLC in Bethesda, Maryland. Prices pared earlier gains after an update to the National Weather Service’s Global Forecast system model predicted lower temperatures than previous reports.

“The market continues to rebound from last week’s three-month low,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “Once we start to put a little heat in the forecast, especially in the key consuming regions of the Midwest and Northeast, the market seems to catch a bid.”

Natural gas for July delivery gained 3 cents to settle at $3.905 per million British thermal units on the New York Mercantile Exchange. Volume was 2.8 percent below the 100-day average at 2:31 p.m. Prices have risen 17 percent this year.

Gas dipped on June 11 to $3.724, the lowest settlement since March 13, on expectations for above-average stockpile increases. The Energy Information Administration reported June 13 that inventories expanded by 95 billion cubic feet to 2.347 trillion in the week ended June 7, compared with the five-year average injection for the week of 84 billion.

The midday forecast update called for temperatures to be at or slightly above normal compared with earlier calls for hotter weather, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland.

Milder Weather

“The midday American model came in cooler for next week and the week after for the Midwest and the East Coast,” Rogers said today. “It did take a big chunk of demand out of the picture that was there before.”

Temperatures in Chicago may reach 77 degrees Fahrenheit (25 Celsius) on June 27, 6 lower than average, according to AccuWeather Inc. in State College, Pennsylvania. Washington will rise as high as 86 degrees on June 29, 2 below normal.

A boom in production, driven by new technology such as horizontal drilling and hydraulic fracturing, or fracking, has pushed U.S. gas output to an all-time high. Marketed gas production will rise to 70.01 billion cubic feet a day in 2013 from 69.18 billion last year, the EIA said in its June 11 Short-Term Energy Outlook.

The gains helped the U.S. meet 88 percent of its energy needs in February, the highest monthly level since April 1986, EIA data show.

Shale Gas

Output from shale plays such as the Marcellus in the Northeast have pushed supplies to records in each of the past four years. Natural gas in storage reached an all-time high of 3.929 trillion cubic feet in November. Inventories will reach 3.813 trillion at the end of October, the EIA said.

“It appears that in the next week, you’re going to start to see the peak cooling season getting under way,” said Teri Viswanath, director of commodities strategy for BNP Paribas SA in New York. “We’ll start to see the industry curbing inventory injections. For the next two months, we’ll likely see gas supported above $4.”

July $4 calls were the most-active options in electronic trading, rising 0.6 cent to 3.1 cents on volume of 774 as of 2:50 p.m. August $3.50 puts were the next-most active, declining 0.6 cent to 2.2 cents cent on volume of 503. Calls accounted for 54 percent of options volume.

Implied volatility for at-the-money options expiring in August was 29.82 percent at 2:45 p.m., compared with 30.03 yesterday.

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