Natural Gas Futures Rise as Seasonal Weather Limits Supply Gain

Natural gas futures rose from a five-month low in New York on speculation that seasonal weather helped limit U.S. inventory gains.

Gas gained 0.4 percent before a government report tomorrow that may show supplies expanded by 57 billion cubic feet last week, based on the median of 17 analyst estimates compiled by Bloomberg. The five-year average gain for the period is 47 billion. Prices swung between gains and losses throughout the day as the outlook for milder weather signaled lower fuel use.

“I’m surprised the median is only 57,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania. “If this number is going to surprise, I think it’s going to surprise with a bigger number.”

Natural gas for September delivery rose 1.4 cents to settle at $3.446 per million British thermal units on the New York Mercantile Exchange. Trading volume was 46 percent below the 100-day average at 2:49 p.m. Prices fell 3.3 percent since the end of June, capping a third consecutive monthly drop. The future are up 2.8 percent this year.

This contract is bordering on its low,” said John Woods, president of JJ Woods Associates and Nymex floor trader. “Technically, we should go down a little bit further,” possibly to $3.35, before rebounding higher, he said.

The discount of September to October futures widened 0.3 cent to 2.5 cents.

September $4 calls were the most active options in electronic trading. They were up 0.1 cent to 0.7 cent per million Btu on volume of 455 at 4:12 p.m. Calls accounted for 60 percent of trading volume. Implied volatility for at-the-money options expiring in September was 32.55 percent at 4 p.m., compared with 32.28 percent yesterday.

New York

Temperatures will be below-normal from the East Coast through the Great Plains through Aug. 14 while the West Coast and parts of Texas may see higher readings, according to MDA Weather Services in Gaithersburg, Maryland.

The high in New York City on Aug. 6 may be 78 degrees Fahrenheit (26 Celsius), 6 below normal, and Chicago may be 3 lower than the usual reading at 80 degrees, said AccuWeather Inc. in State College, Pennsylvania. The next day Houston may be 3 above normal at 96 degrees.

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

Gas Supplies

U.S. inventories totaled 2.786 trillion cubic feet in the week ended July 19, according to the EIA. A deficit to year-earlier levels narrowed for the 15th week, reaching 12.5 percent from 13.1 percent the previous week.

An East Coast heat wave during the first two weeks of July bolstered demand for power to run air conditioners, interrupting a six-week trend of above-average stockpile gains. Gas prices have slumped 22 percent from a 21-month high of $4.444 per million Btu on May 1 during an unusually mild start to summer.

“The pace of inventory restocking over the past month has fuelled speculation that the industry remains in a structural surplus,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a note to clients today. Inventories may total 3.79 trillion cubic feet at the end of October, exceeding the five-year average, she said.

U.S. gross gas production fell 1.2 percent in May to 81.84 billion cubic feet a day, posting the second decline in three months, the government said in the EIA-914 report, released today.

Production Report

Output in the lower-48 states was little changed at 73.37 billion cubic feet a day. New wells came online from the Marcellus shale deposit in the Northeast, while declines in the Gulf of Mexico and Wyoming were “due primarily to shut-ins for scheduled maintenance at platforms and gas plants,” the EIA said in the monthly report.

The U.S. met 87 percent of its own energy needs in the first four months of 2013, on pace to be the highest annual rate since 1985, EIA data show.

Gas futures volume in electronic trading on the Nymex was 159,645 as of 2:51 p.m., compared with the three-month average of 294,000. Volume was 218,000 yesterday, the least since July 5. Open interest was 1.369 million contracts yesterday after dropping to 1.364 million on July 26, the least since March 20. The three-month average is 1.447 million.

The exchange has a one-business-day delay in reporting full volume and open interest data.

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