Natural Gas Futures Rise a Second Day on Heat Forecasts

Natural gas futures slid in New York for the second time in three days on speculation that mild weather will expand a supply surplus of the fuel over the five-year average.

Gas dropped 0.5 percent as the median of eight analyst estimates compiled by Bloomberg predicted government data Aug. 22 would show supplies rose by 71 billion cubic feet last week. The five-year average gain is 56 billion. MDA Weather Services said temperatures may be mostly normal or below-normal on the East Coast from Aug. 25 to Aug. 29.

“The market is definitely going to be well-supplied from a historical viewpoint,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “We’re going to see a storage number that surprises to the upside, which will be very bearish.”

Natural gas for September delivery fell 1.9 cents to settle at $3.444 per million British thermal units on the New York Mercantile Exchange. Trading volume was 5.6 percent below the 100-day average at 2:37 p.m. Prices are up 24 percent from a year ago.

The discount of September to October futures widened 0.5 cent to 2.9 cents. October gas traded 39.6 cents below the January contract, compared with 38.9 cents yesterday.

September $3.20 puts were the most active options in electronic trading. They were 0.1 cent higher at 0.5 cent per million Btu on volume of 809 at 2:59 p.m. Puts accounted for 60 percent of trading volume. Implied volatility for at-the-money options expiring in October was 33.01 percent at 3 p.m., compared with 33.29 percent yesterday.

Gas Stockpiles

Gas inventories totaled 3.006 trillion cubic feet in the week ended Aug. 9, 1.5 percent above the five-year average. Stockpiles were 7.7 percent below year-earlier supplies.

The high in New York on Aug. 25 may be 80 degrees Fahrenheit (27 Celsius), 2 lower than usual, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Washington may reach 85, 1 less than average.

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

The number of rigs drilling for natural gas in the U.S. last week rose by two to 388, data from Baker Hughes Inc. in Houston show. The total has dropped 10 percent this year.

Production Outlook

“We expect the supply side of the equation to continue its healthy pace, led by unprecedented plans for infrastructure growth and de-bottlenecking of production,” Jan Stuart, head of energy research at Credit Suisse in New York, said in a note to clients today.

Lower-48 state natural gas output was little changed in May as new wells began operating in the Northeast’s Marcellus shale formation while Wyoming production declined during scheduled maintenance, government data showed last month.

Gross gas production in the contiguous states totaled 73.37 billion cubic feet a day, compared with a revised 73.38 billion in April, the EIA’s monthly EIA-914 report showed July 31.

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, according to EIA data.

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