Natural Gas Advances on Smaller-Than-Forecast Inventory Gain

Natural gas futures climbed for the third time in four days after a government report showed that U.S. stockpiles expanded by less than forecast last week.

Gas gained 2.5 percent after the Energy Information Administration said inventories rose 57 billion cubic feet in the week ended Aug. 16 to 3.063 trillion cubic feet. Analyst estimates compiled by Bloomberg showed a gain of 65 billion. A survey of Bloomberg users predicted an increase of 62 billion.

“The storage number was well below expectations,” said Aaron Calder, an analyst at Gelber & Associates in Houston. “Gas demand from power generators has been strong. The forecasts are showing hotter-than-normal temperatures across the Midwest and there’s really going to be significant cooling demand.”

Natural gas for September delivery rose 8.5 cents to settle at $3.545 per million British thermal units on the New York Mercantile Exchange, the highest settlement price since July 26. Volume was 23 percent above the 100-day average at 2:35 p.m. Gas is up 5.8 percent this year.

The discount of September to October futures narrowed 0.1 cent to 3 cents. October gas traded 37.9 cents below the January contract, compared with 39.1 cents yesterday.

September $3.50 puts were the most active options in electronic trading. They were 5 cents lower at 3.1 cents per million Btu on volume of 704 at 2:51 p.m. Puts accounted for 69 percent of trading volume. Implied volatility for at-the-money options expiring in October was 31.69 percent at 2:45 p.m., compared with 32.78 percent yesterday.

Supply Report

The stockpile increase was bigger than the five-year average gain for the week of 56 billion cubic feet, EIA data show. A surplus to the five-year average was unchanged from a week earlier at 1.5 percent. Supplies were 7.2 percent below year-earlier inventories, compared with 7.7 percent in last week’s report.

Commodity Weather Group LLC said temperatures may be higher than usual in the Midwest through Sept. 5. The high in Chicago on Aug. 31 may be 90 degrees Fahrenheit (32 Celsius), 10 more than average, according to AccuWeather Inc. in State College, Pennsylvania.

The high in Indianapolis on Aug. 31 may be 92 degrees Fahrenheit, 9 above average, AccuWeather data show. Power generation accounts for 32 percent of U.S. gas demand, according to the EIA, the Energy Department’s statistical arm.

There are “downside risks” to Bank of America Corp.’s 2014 gas price forecast of $4.20 per million British thermal units as production from the Marcellus shale formation grows, Francisco Blanch, head of commodities research at the bank in New York, said in a note to clients dated yesterday.

“North America simply remains awash with dry natural gas,” Blanch said in the report.

Gas Output

The U.S. cut its 2013 natural gas production estimate to 69.89 billion cubic feet a day from last month’s forecast of 69.96 billion, the EIA said Aug. 6 in in its Short-Term Energy Outlook. Output may rise 1 percent from a year ago to a record as onshore supplies climb.

Inventories may total 3.8 trillion cubic feet at the end of October, about 130 billion below last year’s level for the time of year, the EIA said.

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

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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