U.S. Natural Gas Futures Reverse Decline as Volumes Jump

Natural gas climbed in New York for the second time in three days amid forecasts for above-normal temperatures that would boost air conditioner use.

Gas gained 0.6 percent as MDA Weather Services in Gaithersburg, Maryland, said temperatures would be higher than average in most of the lower-48 states from July 15 through July 24. The high in Chicago on July 20 may be 90 degrees Fahrenheit (32 Celsius), 6 higher than usual, according to AccuWeather Inc. in State College, Pennsylvania.

“Some of the private forecasters are calling for a heat dome to come into the Midwest,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “We could see an extended period of hot and dry weather across the country that would boost power demand.”

Natural gas for August delivery rose 2.3 cents to settle at $3.68 per million British thermal units on the New York Mercantile Exchange. Trading volume was 31 percent below the 100-day average at 2:44 p.m. Prices have climbed 9.8 percent this year.

The discount of August to October futures was unchanged at 1.7 cents.

August $3.60 puts were the most active options in electronic trading. They were 0.6 cent lower at 6.2 cents per million Btu on volume of 522 at 2:57 p.m. Puts accounted for 50 percent of trading volume. Implied volatility for at-the-money options expiring in August was 30.38 percent at 2:45 p.m., compared with 30.83 percent yesterday.

Hot Weather

The high in New York on July 20 may be 95 degrees, 11 more than usual, AccuWeather data show.

Power generation accounts for 32 percent of U.S. gas demand, according to the Energy Information Administration, the Energy Department’s statistical arm.

An EIA report scheduled for release tomorrow may show gas stockpiles rose 81 billion cubic feet in the week ended July 5, according to the median of 13 analyst estimates compiled by Bloomberg. The five-year average change for the week is a gain of 74 billion, agency data show. Supplies climbed by 34 billion in the same period last year.

Gas inventories totaled 2.605 trillion cubic feet in the seven days ended June 28, the EIA said July 3. Supplies were 1.1 percent below the five-year average and 15.9 percent below year-earlier stockpiles.

Gas Production

Natural gas producers increased their hedges this year at the most aggressive pace in three years to take advantage of a spring price rally, though it’s unlikely this will cause an uptick in gas-directed drilling, Biliana Pehlivanova, an analyst with Barclays in New York, said in a note to clients today.

U.S. gas production growth may “tip into declines” in the second half of 2013, Pehlivanova said.

The U.S. cut its 2013 natural gas production estimate to 69.96 billion cubic feet a day from last month’s forecast of 70.01 billion, according to the EIA’s Short-Term Energy Outlook, released yesterday. Output may still rise 1.1 percent from 2012 to a record as onshore supplies climb.

Stockpiles may rise to 3.809 trillion cubic feet at the end of October, about 120 billion below last year’s peak, the EIA said in the report.

The number of rigs drilling for natural gas in the U.S. rose by two to 355 last week, according to data released July 3 by Baker Hughes Inc. in Houston. The gas rig total is down 18 percent this year.

The U.S. met 89 percent of its own energy needs in March, the highest monthly rate since April 1986, EIA data show.

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